Construction Insights Update | NBS BIM for Manufacturers (April 2017)

Adrian Malleson
Head of Research, NBS
04/04/2017
Construction Insights Update

Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update

Bank of England GDP Forecast August
2016
Source: Bank of England
“The largest revision to our GDP
forecast since the MPC was formed
almost two decades
ago. “

0.5
1
0.6
0.1
0.6
0.1
0.4
0.2
0.4
-0.1
1.1
-0.2
0.6
0.5
0.8
0.5
0.8
0.9
0.8 0.8
0.3
0.5
0.3
0.7
0.2
0.6 0.6
0.7
380000
390000
400000
410000
420000
430000
440000
450000
460000
470000
480000
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3
Source: ONS

“Growth has remained resilient
since the referendum, with the UK
posting the fastest rate in
the G7 last year.
The economy [is] now projected to
expand by 2.0% in 2017 and around
1¾% thereafter.
Bank of England GDP Forecast
February 2017

1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
£ to $
“Sterling’s decline was clearly
prompted by the referendum result.
It also seems likely that the foreign
exchange market has decided the
consequences are negative.
The most plausible explanation for
the depreciation is that, in the eyes of
the market, leaving the EU will make
exporting harder and more costly. To
help compensate the currency needs
to be cheaper. “
Ben Broadbent – Bank of England

Inflation
Projection
Inflation growth as a
natural response to
Stirling’s Depreciation.
It’s likely to weigh on
consumer income.

What has led to this significant revision? There are four main reasons:
First: the government autumn statement indicated an easing of austerity
measures.
Second: the outlook for the global economy is looking better than it did last
year.
Third: the easing of “fiscal conditions” – a weaker pound and low interest
rates - are helping the economy.
Fourth: consumer confidence remains strong. Households have not
reduced spending. It was originally thought that the uncertainty
caused by the referendum would mean consumers spend less. But
no. Consumer spending continues to grow, in spite of an
expectation of lower income caused by wage settlements not
matching inflation.

Source: WTO

Source: OECD
Source: OBR

The biggest determinants of the UK’s medium-
term prosperity will be the country’s new
relationship with the EU and the reforms that it
catalyses.
Some of the adjustments to this new reality may prove
difficult and many will take time. But the UK can handle
change. It has one of the most flexible economies in the
world. It benefits from a deep reservoir of human
capital, world-class infrastructure
and the rule of law. Its people are admired the world
over for their strength under adversity.
Source Bank of England

The UK’s construction sector was in a strong position.
Between now and 2030, the UK was set to rise to become the
world’s sixth largest construction market, overtaking Canada
and Germany to also become Europe’s largest construction
market.

“We forecast that the volume
of total construction output in
the UK will increase by an
average of 2.9% pa between
2014 and 2030, with the
strongest growth in the
infrastructure sector and the
slowest for non-housing
work.” Oxford Economics

116.1
118.3
100.0
102.0
104.0
106.0
108.0
110.0
112.0
114.0
116.0
118.0
120.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2016 2017
Source: ONS

-13.2%
8.2%
2.3%
-7.5%
2.0%
102,000
104,000
106,000
108,000
110,000
112,000
114,000
116,000
118,000
120,000
122,000
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2009 2010 2011 2012 2013
% change Value (£M)
Source: ONS

Source: ONS
UK Construction
Output in 2016 =
£151,278 M
(current prices, non seasonally adjusted)
Public Housing, 3%
Private Housing, 20%
Infrastructure, 13%
Public,
7%
Private Industrial, 3%
Private Commercial,
20%
Housing R&M, 18%
Infrastructure R&M,
5%
Other
R&M, 11%
UK Construction Output – by sector

Health,
8%
Education, 27%
Offices, 29%
Shops, 11%
Entertainment, 17%
Other, 7%
Other Public Non-Housing and Private Commercial (2016)
Value shown =
£42,019 M
(circa 28%)
Source: ONS

“The need for additional housing in
England is between 232,000 to 300,000
new units per year” – UK Parliament
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
UK Housing Completions
Local Authorities Housing Associations PrivateSource: DCLG

Sectors
• Housing : Continued modest growth in the coming
years
• Commercial: Contraction, in part as a result of the Brexit
decision
• Education: Continued growth spurred by the Priority
School Building Programme and HE work
• Infrastructure: Strong performer with significant year on
year growth

Some issues for the construction sector:
• Uncertainty & outcome of Brexit negotiations
• Investment
• Material costs
• Labour

Source: WTO
Global Poverty : 42% in 1981 to 10% in 2013
Life Expectancy : 48 in 1950 to 71 in 2015
Literacy: 36% in 1950 to 85% in 2014
GDP per Capita 450 US$ in 1960 to $10,000 in
2015 (current prices)

Phase 1
Global Financial Crisis
Phase 2
Sovereign debt crisis
Phase 3
Deleveraging in EM,
end of the
commodity super-
cycle
Phase 4
Political and social
change. Worsening of
the growth/inflation
mix
Phase 5
De-Globalisation?

• Trade
• Working on projects in EU countries
• As an economy, trading with the EU
• Being able to use European products in the UK
• Freedom of movement
• Staff from other countries bring richness, diversity, different
perspectives
• People from different countries, have specific strengths
• Spain – strong design approach
• Eastern Europe – strong technical skills
How important is the UK’s current integration into the EU? - Very
Source: NBS Research

• Immediate aftermath
• Staff upset
• EU staff feeling worried and unwelcome
• Workload
• Immediate dip in work
• Some EU projects put on hold, no new work
• Picked up latter part of 2016
• Although some say clients still holding back
• Trade
• Cost of some materials have increased
• Uncertainty

But architects are adept at managing through change
• Boom and bust (1990s and 2008).”
• Brexit
• Policy: New Labour investment into public buildings : Too much
money, too quickly; but new procurement approach squeezing
design
• Technology: BIM
• Skills shortage
• Changing role of the architect

Lower emissions
50%
Reduction in greenhouse gas emissions
in the built environment.
Faster delivery
50%
Reduction in the overall time, from inception to
completion, for new build and refurbished assets.
Lower costs
33%
Reduction in the initial cost of
construction and the whole life cost of
built assets.
Improvement in exports
50%
Reduction in the trade gap between total
Exports and total imports for construction
products and materials.

22
302
24
370
24
363
35
344
100
387
105
413
25
435
0
50
100
150
200
250
300
350
400
450
500
Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports
2009 2010 2011 2012 2013 2014 2015
Trade in Services - Architectural (£m)
Source: ONS

Europe, 16%
America, 18%
Asia, 59%
Australia, 1%
Africa,
6%
UK Architecture Exports 2014
Source: Department of Culture, Media and Sport

Thank you
Adrian Malleson
adrian.malleson@ribaenterprises.com
linkedin.com/in/adrianmalleson

Construction Insights Update | NBS BIM for Manufacturers (April 2017)

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