einsidetrack : Building Construction News - MARKET INTELLIGENCE: The only way is up

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(Free-Press-Release.com) November 9, 2009 -- Our survey this month tells a dismal tale of shrinking margins and reduced opportunities with the prospect of the New Year bringing more shrinkage even though the economy is finally emerging from recession.

We are bumping along the bottom, but there are still opportunities if you are in the right sectors.

Predicting trends for subcontracts continues to be difficult as different sectors react in different ways to the market.

* Commercial offices - This is very quiet and will continue to be so for a long time. As always there are a number of clients testing the market in anticipation of completing a project just in time to take advantage of the upturn. The problem is, knowing when that will be.
* Fit-out - The fit-out and re-fit market can only improve as commercial firms look to make the best of their space.
* Residential - There are a number of projects in the system including Private and Affordable schemes some of which will almost certainly be built over the next two years. It is highly likely that funding will be dramatically cut at some point after the upcoming election which will, in all probability, see changes in Government policy.
* Hotels - This is still quiet but there are some schemes which are pushing forward.

* Data centres - This is a consistently positive area of activity and will continue to be so for some time. There is a trend developing for clients to look for existing data space in order to avoid building new if at all possible. Some have even compromised on their requirements and accepted a lesser facility in order to save money. It is possible that schemes could be downgraded during the design process.
* Health - This is another sector showing signs of improvement but is very susceptible to cutbacks.
* Education - New projects continue to be approved but for how much longer?
* Infrastructure - With the sale of Gatwick just last month it is anticipated the BAA may push on with its development plans for Heathrow and Stansted which is good news for the framework contractors. The redevelopment of Terminals 1 and 2 in time for the Olympics in 2012 is attracting a lot of attention and is seen by many as a major target.

* Major projects have recently been issued for refurbishment of various railway stations and this has plugged a major hole in order books.
* Public - There are major projects both in local and central government coming to fruition. A large proportion should get the go ahead. The makeover of the Palace of Westminster is probably the most high profile where huge investment is required to get many of these public buildings up to an acceptable standard.

* Retail - There are plenty of projects in the pipeline but there is a new commercial reality and prices are definitely getting keener. The Supermarkets appear to be doing good business even now but department stores are definitely struggling. Maintenance regimes are also under close scrutiny.

Consultants

There has been a noticeable improvement in the level of enquiries and there is definitely a bit more optimism in the air. The consultants have had a very tough time over the last year or so and are desperate for some good news. It remains to be seen how far these schemes will go or whether they come to a halt when planning permission is granted.

Any new schemes they are looking at will be at least a year away from hitting the market.

Contractors

There has been a noticeable drop in preliminaries costs and also overhead percentages over the last year. * Home |
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eInsideTrack › Marketplace › MARKET INTELLIGENCE: The only way is up

MARKET INTELLIGENCE: The only way is up

by Dave Griffin, EC Harris

This is traditionally a month when the winds blow and bring the leaves down. This year the weather has been amazing but the cold winds of the economy have been blowing and bringing margins down!

Our survey this month tells a dismal tale of shrinking margins and reduced opportunities with the prospect of the New Year bringing more shrinkage even though the economy is finally emerging from recession.

We are bumping along the bottom, but there are still opportunities if you are in the right sectors.

Predicting trends for subcontracts continues to be difficult as different sectors react in different ways to the market.

* Commercial offices - This is very quiet and will continue to be so for a long time. As always there are a number of clients testing the market in anticipation of completing a project just in time to take advantage of the upturn. The problem is, knowing when that will be.

* Fit-out - The fit-out and re-fit market can only improve as commercial firms look to make the best of their space.
* Residential - There are a number of projects in the system including Private and Affordable schemes some of which will almost certainly be built over the next two years. It is highly likely that funding will be dramatically cut at some point after the upcoming election which will, in all probability, see changes in Government policy.
* Hotels - This is still quiet but there are some schemes which are pushing forward.

* Data centres - This is a consistently positive area of activity and will continue to be so for some time. There is a trend developing for clients to look for existing data space in order to avoid building new if at all possible. Some have even compromised on their requirements and accepted a lesser facility in order to save money. It is possible that schemes could be downgraded during the design process.
* Health - This is another sector showing signs of improvement but is very susceptible to cutbacks.
* Education - New projects continue to be approved but for how much longer?
* Infrastructure - With the sale of Gatwick just last month it is anticipated the BAA may push on with its development plans for Heathrow and Stansted which is good news for the framework contractors. The redevelopment of Terminals 1 and 2 in time for the Olympics in 2012 is attracting a lot of attention and is seen by many as a major target.

* Major projects have recently been issued for refurbishment of various railway stations and this has plugged a major hole in order books.
* Public - There are major projects both in local and central government coming to fruition. A large proportion should get the go ahead. The makeover of the Palace of Westminster is probably the most high profile where huge investment is required to get many of these public buildings up to an acceptable standard.

* Retail - There are plenty of projects in the pipeline but there is a new commercial reality and prices are definitely getting keener. The Supermarkets appear to be doing good business even now but department stores are definitely struggling. Maintenance regimes are also under close scrutiny.

Consultants

There has been a noticeable improvement in the level of enquiries and there is definitely a bit more optimism in the air. The consultants have had a very tough time over the last year or so and are desperate for some good news. It remains to be seen how far these schemes will go or whether they come to a halt when planning permission is granted.

Any new schemes they are looking at will be at least a year away from hitting the market.

Contractors

There has been a noticeable drop in preliminaries costs and also overhead percentages over the last year.

This fits with our survey of the industry as can be seen from the graph.



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Prices are still holding up reasonably well even though there has been some discounting.

The recent trend for main contractors to buy m&e contractors as the in-house resource has meant that it has been increasingly difficult to assemble truly competitive tender lists, which has also helped support prices on larger projects.

Confidence

Confidence is a fragile commodity at the moment and after a small rise last month people are being a little more conservative this time around.Many contractors report that the order book for 2010 is slowly filling up and some have been surprised at the relative ease with which this has happened, but then are also concerned at the near complete absence of a pipeline for 2011.

As reported last month we are starting to see a small recovery in demand but it is still going to be a tough couple of years.

Preliminaries are always assessed on a project by project basis but the overall percentages seem to be creeping downwards from a peak average of around 12 per cent we are seeing an average closer to 8 per cent now.

Establishments have been rationalised but firms still need to achieve 12-14 per cent to cover their costs. Recent tender returns have shown OH&P to be included around 7-8 per cent down from 10-12 per cent average.

All this is good news for clients procuring projects and with Land Securities pushing some of their projects forward they have a great opportunity to obtain a very competitive price and hopefully be approaching completion at a good time to take advantage of the upturn.

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