Northern Ireland market intelligence survey

Transcription

1 Northern Ireland market intelligence survey Spring 2018 making the difference

2 1 2 Key Project Completions Lincoln Building, Andras House Botanic Studios, WJ/Lacuna Developments Titanic Hotel Key Projects Progressing The Energy from Waste Project, FCG & Equitix Introduction 2017 has been a mixed bag on different fronts with continued uncertainty making the challenges facing the Northern Ireland construction industry difficult to quantify. That being said there have been many successes including energy projects, student accommodation, hotels and offices. This report is an informative insight to current local tendering conditions and a market outlook for the construction industry in Northern Ireland. The survey data within reflects issues that many regional projects have and may encounter and contains a mixed view on outlook, perhaps reflecting an uncertain year for many. The outcomes of our most recent survey shows the construction market for general and fit-out contractors in Northern Ireland to be mixed once again. Some contractors are reporting the market is buoyant and very busy, with contractors having to become more selective with works they are to undertake. But some are noticing fewer projects available in the market, especially in the public sector. Fallout from the recent unfortunate contractor insolvencies and procurement collapses have yet to be felt in the market but knock-on effects in relation to project completions and the supply chain are likely. It also marks another pointer to revisions in procurement and contract strategy being required. The larger local main contractors still look to Great Britain for the bulk of their turnover with what has been historically better returns for them. There remains a reluctance from national contractors and their supply chain to tender for works in Northern Ireland, with a few exceptions where joint ventures are used. Fit-out contractors locally though are tending to look to the Republic of Ireland (Dublin) for their main pipeline of work. The fit-out market in Northern Ireland has been described as very competitive at this given time, with growth in particular coming from the office accommodation sector. However despite this, views are that political instability is hampering what should be stable growth in the Northern Ireland construction sector. Outlook Over the coming year it is hoped that the industry can and will benefit from the following: The long overdue reestablishment of a functioning Executive and Assembly Clear direction on our local Brexit Strategy that recognises and maximises the advantageous role that Northern Ireland can play Renewed vigour in progressing the major infrastructure projects, including spending the money promised through the 2015 Fresh Start Agreement and the additional funding promised through the DUP/ conservative agreement Investment of the Transforming Cities Fund for Belfast, building on Belfast City Council s Belfast Agenda, and a City Deal for the North West Renewed foreign direct investment momentum off the back of political and economic stability and certainty Progress in recognising and dealing with skills shortages, re-examining contract and procurement strategies, encouraging innovation and improving speed to market will improve outcomes for all, including our Construction Industry General contracting - tender and market conditions Outlook Whilst the majority of surveyed contractors, 80.0 percent, state the market outlook is staying the same, suggesting a neutral view percent of surveyed contractors stated the market outlook to be cooler. However, as of the fourth quarter of 2017, surveyed general contractors in Northern Ireland have recorded strong order book statistics. Contractor order books are on average 89.0% full for the 2017/18 financial year and 65.8% for 2018/19. Both of which have increased since our previous survey in Q For 2019/20, order book completion has increased to 39.2 percent on average. Indicating a resonable pipeline of future work. Strong competition, moderate prices As a result of the mixed outlook and increased uncertainty, tendering conditions do appear to be weakening slightly, with 60.0 percent of surveyed contractors reporting strong competition, and moderate tender prices, and 40.0 percent highlighting there is intense competition and lower prices. Contractor tender price expectations 6% 5% 4% 3% 2% 1% 20% Despite market feedback suggesting a weakening of competitive tendering, tender price growth continues to be positive. General contractors in Northern Ireland advocate that tender price growth was 1.6 percent in 2017, and is suggested to be 2.3 and 1.9 percent in 2018 and 2019 respectively. One reason behind these positive figures is that there is a shortage of skilled and quality labour is evident in the market, which is increasing price pressures. The ease of access into markets in Great Britain and Republic of Ireland which may be more profitable, is draining the local skills supply in Northern Ireland. On average, 61.0 percent of surveyed main contractor workloads are outside of Northern Ireland. Contractor tender price expectations - general 60% Regional construction market outlook Current tendering condition 80% 40% n Cold Intense competition, not much work, prices low. n Lukewarm Strong competition, moderate tender prices. n Warm Moderate competition, moderate tender prices n Hot Reduced competition, work easy to get, tender prices high n Overheating Shortage of builders, minimal competition, prices very high n Warmer n Staying the same n Cooler The market remains bouyant but the ease of access to markets in mainland Britain and the republic of ireland continues to drain the local skills pool for skilled trades men and labours 0% Belfast Power Station, Evermore Min/Max 29 Wellington Place & Queen St, WJ/Lacuna Developments Erskine House, HMRC Belfast Hub Tender prices remain low with many contractors bidding at or below cost in an effort to secure workload

3 3 4 Cumulative tender price growth - Great Britain and NI Percentage increase (in nominal term) of construction costs in the last and coming 12 months Great Britain Northern Ireland - 12 months + 12 months Reinforcement bar Concrete 12% Aluminium composite panel 14.9% Structural steel Aluminium curtain walling Plumber/electrician Carpenter/bricklayer Key public sectors such as primary, secondary and further education have a strong pipeline of work which is either being stalled or coming to market all at once forcing contractors to make difficult choices on what to pursue. Carpet layer, tiler, plasterer Consultant Publication date Cumulative growth Site foreman General labourer C&B Q % 1.2% 1.2% 2.1% 2.1% 9.4% 50t crane G&T Q % 2.0% 2.5% 2.0% 2.0% 10.9% Gleeds Q % 0.0% 4.0% 6.0% 6.0% 19.2% T&T Q % 1.2% 2.2% 2.6% 3.2% 12.0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 0% 2% 4% 6% 8% 10% n Last 12 months n Coming 12 months Key Indicators $ Materials Profit Preliminaries Labour Over the past three months, average contractor sentiment indicates that material costs have increased marginally. Average contractor sentiment indicates that profit levels have stayed the same when looking back over the last quarter. Preliminaries have increased marginally according to contractor sentiment over the last three months. These vary by project size and specification. The cost of labour, indicated by contractor perceptions, has increased marginally when looking back over the past quarter.

4 5 6 Fit-out contracting tender and market conditions Order Books For fit-out contractors the picture is somewhat different in terms of order books and outlook. As of the fourth quarter of 2017, surveyed fit-out contractors in Northern Ireland have recorded lacklustre book statistics. On average, order books are 60.0% full for the 2017/18 financial year for surveyed fit-out contractors. Order books are also 17.8% full on average for 2018/19 and 5.0% full for 2019/20. It is noted thought that order books in this sector are usually lower. This is due to pipeline changes occurring more quickly given the shorter procurement and delivery programmes associated with fit-out works. How much of contractor order books are full - financial year Supply chain shortages A key challenge in the market is lead times. One contractor has noted lead times to have increased by over 20.0% from quotes at tender stage for some specialist materials. Like the general market a shortage of labour is a major challenge facing surveyed fit-out contractors. The ease of access into more profitable markets is draining the supply with a fear that this issue may only increase over the next two to three years. Lastly, one contractor has expressed the time taken for the finalisation of design to allow the manufacturing of goods is an issue facing their business at the current time. Fit-out contractor tender price expectation Latest contractor feedback suggests tender price inflation increased by 2.0% in 2017 with a low range of 3.0 percentage points - between 0.0% and 3.0%. Over 2018 expectations look to increase in pace, with tender price growth at 3.0%. Expected tender price growth is also faster in 2019, at 4.0%. Fit-out price increases are suggested to be greater than general contractor inflation expectations. 60% Contractor tender price expectations - fit-out 50% 40% 10% 30% 8% 20% 6% 10% 4% 0% 2017/ / /20 2% 0% Min/Max Mixed outlooks Market outlook according to fit-out contractors operating in Northern Ireland is mixed. 50.0% of contractors stated the current market outlook to be staying the same, with 25.0% each answering the current market outlook to either be cooler or warmer. 75% 25% 25% 25% Current tendering conditions Regional construction market outlook 50% Within Fit out, the challenge of weekend working is getting harder to achieve and maintain. n Cold Intense competition, not much work, prices low. n Lukewarm Strong competition, moderate tender prices. n Warmer n Staying the same n Cooler n Warm Moderate competition, moderate tender prices n Hot Reduced competition, work easy to get, tender prices high n Overheating Shortage of builders, minimal competition, prices very high Finding the market to be very competitive with a number of contractors looking to secure work at home. All reasonable sized contractors are working outside NI.

5 7 8 Percentage increase (in nominal term) of construction costs in the last 12 and coming 12 months Axiom, Lincoln Buildings, Belfast - 12 months + 12 months Cat B ductwork Cat B joinery Plumber/electrician Carpenter/bricklayer Carpet layer, tiler, plasterer Cat B fabric General labourer Site foreman The market is very busy and contractors are becoming more selective in works they are prepared to undertake. Margins remain the same due to competitiveness of main contractors whilst subcontractor costs are generally increasing due to labour resource limits ductwork lighting Cat A power Fire alarms Security Cat B acoustic fabric Cat B lighting Cat B data cabling Suspended ceilings The obvious growth sector within the Fit out industry in Northern Ireland over the last 12 months has been the office accommodation Cat A high range Cat B drylining Cat A low range Raised access floor Sprinkler systems Carpet tile Blinds Cat B double glazed partitions Cat B stone floor tiling Cat B carpet tile Cat B timber doors Cat B suspended ceilings 0% 1% 2% 3% 4% 5% 6% 0% 1% 2% 3% 4% 5% 6% Lead-in times for specialist goods extending by 20% over times quoted at tender stage n Last 12 months n Coming 12 months

6 9 10 Making the difference in Northern Ireland Very few projects from CPD / NI public sector coming out at PQQ stage for the past few months. Leading to tightening tender prices, but also continuing inflationary pressure From our office in Belfast we support clients across sectors, including on some of the country s most challenging infrastructure, building and regeneration programmes. Providing full project management, cost management, advisory and health & safety services, our work includes many of Northern Ireland s and Ireland s highest-profile projects and programmes, including Queens University Belfast Energy from Waste, Belfast Erskine House, Belfast CEM (CM) MAP (PM, CM & Full Design Team Services) Project Management and Project and, Principal Designer, BIM IM, etc London continues to be a large draw for local sub-contractors with higher margins on offer and therefore leaving a skills gap locally and in other regions McArthur Hall, Belfast Northway Composting Facility Forthriver Innovation Centre Project Management, and Full Design Team Services Project Management, Cost Management and Principal Designer Project Management Bombardier, Belfast Project Management, Cost Management and CDMC 10 Pembroke Place, Dublin National Children s Hospital CSR - Action for Children Action for Children education fund and ByteNight 2017

7 About Turner & Townsend Turner & Townsend is an independent professional services company specialising in programme management, project management, cost and commercial management and advisory across the real estate, infrastructure and natural resources sectors. With 104 offices in 44 countries, we draw on our extensive global and industry experience to manage risk while maximising value and performance during the construction and operation of our clients assets. Our local Directors Colm Lavery Director, Real Estate and Strategic Lead t: +44 (0) e: Brian Thompson Director, Infrastructure t: +44 (0) e: Kris Hudson Economic Analyst t: +44 (0) e: Turner & Townsend Limited. This content is for general information purposes only and does not purport to constitute professional advice. We do not make any representation or give any warranty, express or implied, and shall not be liable for any losses or damages whatsoever, arising from reliance on information contained in this document. It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any other party without our express written permission and we accept no liability of whatsoever nature for any use by any other party.