黑洞社区

Whether it be March, April or, most likely, May, the big event of the spring will be the general election 鈥� and the spending policy announcements that come from the winning side. With a Conservative victory looking likely, many industry commentators are already making predictions about where the new government would prioritise investment, and how delivery would change.

In terms of spending, both parties have been predictably reticent about saying where their cuts would fall. The Tories have refused to commit themselves to any of Labour鈥檚 spending initiatives and have made no secret of the fact that they鈥檙e planning to slash most areas of public spending (see below). The areas that will be protected include health spending and nuclear power. Expect the new-build reactor programme to be pushed forward even while other areas of spending are being cut. Other big projects, such as Crossrail, are probably too far advanced to be scrapped now.

On delivery, the core part of Tory strategy is its localism agenda, which would give councils much more control over what gets built where. Shadow housing minister Grant Shapps has pledged that the party will scrap regional development agencies, regional spatial strategies and government-led targets in favour of giving local authorities incentives to build by allowing them to keep council tax raised on new properties for six years, alongside matched funding from government. However, with the UK still facing a housing shortage, it remains to be seen whether more centrally imposed controls 鈥� and possibly more incentives 鈥� would be needed.

Similarly, in other areas of public spending the party would reverse the trend (which it began in the eighties) of transferring council power to quangos. This includes education, where the party is considering giving local authorities control over their own spending, allowing them to allocate funds for building projects and running costs as they see fit.

It鈥檚 also worth looking at whether the party implements its enthusiasm for the Scandinavian models of school administration 鈥� where the emphasis is on teaching, rather than the classroom environment, and existing buildings are frequently converted into schools.

The schools market, as well as bigger infrastructure projects, is likely to be affected by the Tories鈥� attitude towards the PFI. Although some form of private sector funding is inevitably going to be a feature of public procurement, shadow chancellor George Osborne is anxious to distance himself from the procurement route as Labour have operated it. At the very least, reforms to loan terms and a review of the types of project that use PFI are on the cards.

Either way, it鈥檚 reasonable to expect that there will be a slowdown in areas of spending while a Tory government works out how these measures would work in practice, above and beyond the headline cuts that both political parties would be forced to make.

Spoiler alert!

What we will definitely see in politics: Candidates all trying to wear an expression pitched between confidence, glumness and optimism as they try to explain why their package of savage public spending cuts/willingness to invest in the future of Britain will solve our money problems.

What we might see: A contest between David and Ed Miliband for leadership of the Labour party.

Unlikely plot twist: By the end of the year 鈥� and after six months on the chatshow circuit 鈥� Gordon Brown being regarded as exactly the kind of high-minded elder statesman of world politics this country needs to get it out of the mire 鈥�

Also starring 鈥�

The industry players to follow in 2010:

Paul Morrell, the chief construction adviser
The UK鈥檚 first chief construction adviser has to try to forge a closer relationship between industry and government. If the role becomes a cypher, Morrell has said he will quit.

Dan Labbad, chief executive officer, Europe, Lend Lease
Labbad was elevated to the role of chief executive officer for Europe, Middle East and Africa last February. Although he does not directly oversee Bovis Lend Lease, the company鈥檚 UK construction business, industry sources say he is becoming more and more involved with determining its direction.

Paul Sheffield, incoming chief executive, Kier Group
After nearly 40 years at Kier, the last seven as chief executive, John Dodds will step down next March. His replacement, Paul Sheffield, will be tasked with ensuring the balance of one of the UK鈥檚 few hybrid housing and construction firms works in a tricky market.

Anna Stewart, commercial director, Laing O鈥橰ourke
Laing O鈥橰ourke鈥檚 right hand woman looks like she鈥檚 destined to become even more central to the firm鈥檚 future strategy, especially now that former chief operating officer Tony Douglas has left the company.

Tony Douglas, formerly chief operating officer, Laing O鈥橰ourke
Douglas is tipped to make a return in the near future. Where he鈥檒l turn up is anyone鈥檚 guess, although he is expected to remain in construction and has been linked with a number of medium-sized contractors.

Colette O鈥橲hea, London development director, Land Securities
As the woman in charge of a 拢500m development pipeline in London, O鈥橲hea鈥檚 decisions on when to go to market will be crucial for the industry. She is also likely to have an increasingly important role on the company鈥檚 large schemes.

Dissecting the markets

The health sector is facing an overhaul in 2010 as spending on new-build facilities comes to an end and the emphasis switches to 鈥渞ationalisation鈥�. The NHS has already revised its spending estimates and reduced the number of places on its Procure 21+ framework. Some firms, such as Costain, are withdrawing from the market and the Department of Health is preparing cuts of 拢10bn a year by 2012/13.

How hard the axe will come down is unclear but some NHS trusts are said to be talking about spending cuts of 66%. The good news is that health clients will need all the help they can get to increase the efficiency of their estates and refurbish old buildings in the absence of shiny new ones.

New build is likely to give way to refurbishment on the education front, too. Already, councils such as Tower Hamlets have brought in consultants to draw up refurbishment plans in anticipation of cuts to the 拢55bn 黑洞社区 Schools for the Future (BSF) programme. But refurbishment itself could be scaled back if Conservative proposals to scrap ringfenced capital budgets for school improvement works get through.

One comfort is that the impact of the cuts could take most of the year to feed through to the market; observers expect a flurry of BSF deals to be pushed through before the election, with the biggest falls in this sector expected towards the end of 2010. Elsewhere, the further education sector remains hamstrung by the (badly misnamed) Learning and Skills Council, but optimists predict that a relaxation of the cap on university fees could stimulate investment in higher education.

Infrastructure is likely to be the good news sector for 2010, thanks to rail and water upgrades. 黑洞社区 work should start on three Crossrail stations by the summer, but the scheme, or its scheduling, may still be affected by government cuts.

In the water sector, there is greater clarity thanks to Ofwat鈥檚 five-year business plan, which earmarked 拢22bn for capital spending in November. Major projects expected to get under way include the first phases of the 拢2.2bn Thames Tideway scheme.

The power sector remains the biggest potential source of work 鈥� up to 拢50bn will be needed to build the plants 鈥� but construction is still some years away. This year will be a crucial period for securing the necessary permissions from regulatory agencies but don鈥檛 expect much actual spending.

Commercial rents may have bottomed out, but this does not mean the market is about to swing back into action. The Construction Products Association expects the sector to keep on falling until at least the autumn. Some developers plan to restart big office schemes 鈥� Land Securities at its 拢100m Park House in London, for instance. But getting the ideas and finance together for new projects will take time. Leisure may be a better bet than the office market; Travelodge has said it will invest 拢47m in 10 city hotels in 2010, for example. The big retailers could also provide some relief: Tesco is expected to get some of its large mixed-use schemes back on track in the early part of the year and EC Harris forecasts that out-of-town shopping space will grow 2.3% by 2013.

After hitting historic lows earlier this year, and in spite of the normal pre-Christmas dip, things seem to be looking up in the residential market. The Centre for Economics and Business Research predicts a 4% rise in house prices in 2010 and Citigroup expects a 5-10% increase. There are dangers ahead, however, most obviously the uncertainty around the general election. David Birkbeck, director of Design for Homes, anticipates a 鈥渃ooling period鈥� in the six to 10 weeks before the big date as people hold off on decisions. This is a potential problem for housebuilders with year-end dates in the summer as they would miss out on completion figures in the crucial spring period. Meanwhile, Rightmove is forecasting post-election falls and no overall growth in 2010.

Government statistics that said repair and maintenance had leaped 10% in the third quarter of 2009 received a mixed response last month. The RICS used it as an excuse to call for VAT cuts to stimulate the market further while sceptical commentators cast doubt on their accuracy.

The debate is likely to continue into 2010. Tony Williams, chairman of management consultancy 黑洞社区 Value, suggests R&M is particularly vulnerable to public sector cuts because it is 鈥渁n easy place to pull back鈥� and local authorities are expected to review spending on areas like highway maintenance. Private housing is seen as the most likely area for an increase in R&M spending as many homeowners opt to stay put rather than move house.

What the critics say 鈥�

鈥淲e see little activity in the health sector. While there may be refurbishment or renovation, new build is unlikely in any substantive form.鈥�
Richard Steer, senior partner, Gleeds

鈥淓ducation remains a top priority for all major parties and continuity of programmes 鈥� even with reduced funding 鈥� will prevail鈥�
Simon Lucas, head of education, EC Harris

鈥淎 hung parliament would be the worst case scenario. We should consider the Lib Dem鈥檚 view on subjects such as nuclear power, as they could have the power to frustrate decision-making鈥�
Ian Gunter, business development director, Bouygues

鈥淭he pace of change in the commercial sector will continue to be dominated by funding issues. We may well see new funding institutions and models competing with more traditional structured finance for property deals鈥�
Iain Stevenson, director, Currie & Brown

鈥淲ith interest rates remaining low and mortgage availability reasonable, I don鈥檛 see a downturn next year but a gentle recovery. There is a surprising strength in the housing market鈥�
Tony Williams, 黑洞社区 Value

Spoiler alert!

What we will definitely see: The number of graduates entering the industry falls as students completing courses fail to compete with out of work professionals for jobs.

What we might see: Another round of job cuts among housebuilders in the autumn, as a pre-election slowdown hits home in mid-year results.

Unlikely plot twist: Paul Morrell resigns his position as chief construction adviser after being sidelined by government and forms the Construction Liberation Movement.

The disappeared

It鈥檚 hard to imagine that the employment situation could get any bleaker for workers in 2010 after something like 165,000 of them lost their jobs in 2009. But fears are growing that public sector cuts could trigger yet another round of redundancies. The question in the minds of many workers at every level of the industry will be whether economic recovery will provide bosses with the confidence to hang on to their people.

This year, experiences could vary greatly between disciplines. Architects took a crushing blow right at the start of the recession; now they could see their fortunes improve as developers bring them in on schemes likely to break ground in a couple of years. Already there are signs of confidence; Archial went back to a five-day week on 1 January and others, such as Purcell Miller Tritton, say they are recruiting in 鈥渟trategic areas鈥�.

Other consultants are less confident. Aecom鈥檚 pre-Christmas cull of 350 staff in the UK and Europe cast a pall on the outlook for engineers, and the continuing struggle with bad debts in Dubai (see below) will continue to weight on consultants鈥� finances. QSs are preparing for another tough year and are likely to bide their time before recruiting again. 鈥淲e鈥檙e in wait-and-see mode,鈥� says one senior manager. 鈥淲e鈥檝e stopped cutting jobs and salaries but we鈥檙e way off bringing more people in.鈥�

This sentiment could mean another unrewarding year of job hunting for graduates. Chris Green, a board member of Capita Symonds, says: 鈥淕raduates come in with a lot of theoretical knowledge but practical experience takes time and mentoring to acquire, which is a cost that some people are looking to avoid. We are still recruiting but more for specialist training.鈥�

Meanwhile, workers who depend entirely on projects on the ground are likely to face further cuts. 鈥淎 lot of the main contractors have been relatively protected because of public frameworks,鈥� says Noble Francis, economics directors of the Construction Products Association. 鈥淎s that falls away we would expect to see them suffer.鈥�

The Civil Engineering Contractors Association is also warning that there could be 40,000 fewer jobs in its sector by the end of 2010 as the public purse tightens and programmes such as nuclear new-build wait to begin.

The extent and the timing of cuts for listed firms will depend largely on their financials. A raft of poor summer figures for housebuilders following a stagnant pre-election run, for instance, could herald cutbacks in the autumn. 鈥淵ou can鈥檛 go to the City in September and say we didn鈥檛 get 20% of the money we expected in June and didn鈥檛 do anything about it,鈥� says one housing expert. 鈥淭he problem is: who is there left to fire?鈥�

A big year for the regs

The Tories may be about to come to power promising deregulation, but not before the rulebooks get a start-of-the-decade rewrite. The main focus will, of course, be sustainability, with the biggest change coming to the energy rules in Part L. This is due for publication in April and is set to come into force six months later. It will usher in an across-the-board 25% cut in carbon emissions and should be theoretically less disruptive than the revisions in 2002 and 2006. However, the industry may have to get to grips with proposals that will set different carbon reduction targets for different non-domestic building types.

To dovetail with the changes being made to Part L and the publication of a definition for zero-carbon housing (see below), a consultation on the Code for Sustainable Homes has just been published. The code needs revising to take account of the shift towards allowing off-site renewable solutions rather than insisting these have to be on site. The new Part L also means the code鈥檚 energy requirements for levels one to three need revising.

The definition of zero carbon will state what the 鈥渁llowable solutions鈥� will be, which, together with the standards set for energy efficiency and on-site renewables, will pave the way for new houses to become zero carbon by 2016.

More long term is the consultation on the Code for Sustainable 黑洞社区s, which will close on 26 February. This maps out a way for all new non-domestic buildings to be zero carbon by 2019 and will adapt the broad framework set out for the domestic sector.

April brings the arrival of the Carbon Reduction Commitment. This aims to reduce carbon emissions by giving organisations that use more than 拢500,000 of electricity a year a set allocation that can be traded 鈥� which might prove an expensive business for energy guzzlers.

But will we be any greener?

Obviously, these changes won鈥檛 have an immediate impact, but it is still worth asking the question, particularly after the damp squib that was Copenhagen: will the start of the new decade be any greener than the last one? According to the UKGBC, the UK has reduced its carbon emissions by just 1.6% since 1997. David Strong, chief executive of sustainability consultancy Inbuilt, thinks 2010 could actually be worse, rather than business as usual. 鈥淚t is likely to be a year of paralysis rather than action as a consequence of the election,鈥� he says.

Strong also raises a radical possibility 鈥� the Code for Sustainable Homes could be scrapped altogether if the housebuilders get their way. They are lobbying furiously against it because they are groaning under the weight of recession, section 106 agreements, Lifetime Homes requirements and, of course, ever more onerous energy-reduction legislation. All the other elements in the code, such as improving the biodiversity of sites, using greener materials and reducing waste on site are too much for them to cope with. If the Tories win the election, getting rid of the code is politically much easier because they didn鈥檛 cook it up in the first place 鈥�

Spoiler alert!

What we will definitely see this year: Housebuilders will be unhappy about the definition of zero carbon. Even if the government does come up with one, the debate on the practicality of 鈥渁llowable solutions鈥� is bound to continue. For example who is going to organise the upgrading of existing homes or put in a district heating scheme next to a new development?

What we might see: Could the Code for Sustainable Homes be scrapped? Its key energy and water elements are enshrined in 黑洞社区 Regulations so most of it is concerned with less critical stuff such as providing washing lines. If the Tories win the election they could scrap it without losing face, cue much cheering from the housebuilders. It might also make the above seem a tad more palatable鈥�

Possible plot twist: Why stop at scrapping the Code when the 黑洞社区 Regs could be replaced by voluntary guidance. Not as outlandish as it first seems as the Tories have made noises about scrapping the regs.

Weird science

鈥淒uring a downturn builders and subcontractors prefer what they know,鈥� says Paul Wornell, technical consultant with building defects insurer BLP. It鈥檚 not all doom and gloom though. For example, Laing O鈥橰ourke believes prefabrication is the best way of combining quality and low cost and has invested in an off-site concrete products manufacturing facility in Steetley, Nottinghamshire.

The upsurge in the refurbishment market could also herald some interesting prefabricated solutions. Consultant McBains Cooper is already on the case with a sailing boat-inspired compact apartment. The 21m2 module is ready built, plumbed and wired to plug straight into redundant sixties and seventies office blocks to provide instant accommodation for students and workers who commute home at weekends.

Upgrading existing housing is another area ripe for innovation. The government is investing 拢4m on a pilot project to retrofit energy efficiency measures to 500 homes (see below). There is talk of creating off-the-shelf systems such as entire roofs and bay windows that will incorporate upgraded insulation and glazing units and minimal thermal bridges.

Architecture in a time of crisis 鈥�

It鈥檚 long been suspected that interesting times make for interesting designs, and next year supports that theory. For example, there鈥檚 Thomas Heatherwick鈥檚 pavilion that will represent UK architecture at the Shanghai Expo. This is intended to be a low-tech structure to contrast with the high-tech extravaganza of the rest of the Expo, the British pavilion is a cubic structure covered in 60,000 7.5m-long acrylic 鈥渉airs鈥� which will move with the wind and have seeds from Kew Garden embedded in the ends.

Another entry will be Foster + Partners鈥� dune-inspired pavilion for the UAE, which will enclose 3,000m2 of exhibition space, one of the largest structures to be built at the Expo site. It will showcase projects such as Masdar, the experimental carbon neutral community in Abu Dhabi. In the UAE itself, the Masdar Institute, also by Foster, is set to be completed this year, and will be the first part of the masterplan for this desert utopia.

Some critics are falling over themselves to find structures symbolic. The Burj Khalifa (that is, the Burj Dubai renamed in honour of the ruler of Abu Dhabi) has already become the world鈥檚 tallest metaphor, rather than an amazing engineering achievement. Closer to home, Rogers Stirk Harbour + Partners鈥� two sybaritic residential projects, One Hyde Park for Candy & Candy and Neo Bankside for Grosvenor, will almost certainly also be held up as symbols of an economic moment that is gone.

But there will also be opportunities to look to the future. HawkinsBrown鈥檚 Corby Cube 鈥� a combined administrative and arts hub for the Northamptonshire new town 鈥� is definitely a new model for municipal architecture. Drawing together public agencies into a single cubed structure that operates as a practical and symbolic image of joined-up local government, it represents the last word in designers鈥� attempts to help public bodies work better.

Will Dubai pay up?

The biggest drama in international construction is taking place in the former paradise of Dubai. With few UK firms expecting to do much work there this year, the main question for anyone involved in the market is, will I get paid for the work I鈥檝e done so far? The good news, which will come as a relief to the British engineers owed at least 拢250m, is that Dubai experts say the answer is yes. The bad news is it will probably still be a problem in January 2012.

Even if Dubai鈥檚 assets have lost value, the Abu Dhabi based federal government is prepared to back it, at least to some extent. The most encouraging sign came on 14 December when Abu Dhabi loaned it $10bn (拢6.15bn), but then Dubai has $50bn of debt due in the next three years 鈥�

The head of the Middle East office of a large UK consultant says: 鈥淓veryone will get paid in the end. It might not be the full amount 鈥� many of us are signing deals to get back 70 pence in the pound 鈥� but it will come through. The UAE鈥檚 reputation is at stake and culturally it is not acceptable to default.鈥�

Three Arabian hotspots

If not Dubai, then where? Rod MacDonald, Buro Happold鈥檚 chairman, took up residence in Riyadh, Saudi Arabia, and Kevin Sims, Davis Langdon鈥檚 Middle East head, moved to Qatar. Many Dubai branches, such as the one belonging to Aecom, are moving staff down the road to Abu Dhabi. These three countries are clearly where the multinationals think the action will be next year.

That said, the crisis engulfing Dubai is having an impact in Abu Dhabi. Credit ratings agency Moody鈥檚 has threatened to downgrade key Abu Dhabi developers Aldar, Mubadala and TDIC. Merrill Lynch said in mid-December that it expected growth for the UAE as a whole to be zero in 2010. However, the emirate is ploughing ahead with giant projects such as the 拢22bn Saadiyat Island scheme being developed by TDIC, Aldar鈥檚 拢13bn Al Raha Beach scheme and the sustainable city, Masdar, which is worth about 拢22bn.

Qatar, meanwhile, is set for staggering GDP growth of 17% in 2010, according to fund manager EFG-Hermes. The country is planning to build seven cities surrounded by many other projects. Two starting on site next year are a 拢15bn metro and light rail project and a 35ha regeneration scheme called Heart of Doha in the nation鈥檚 capital.

Saudi Arabia is the biggest market of all, with 拢623bn being spent on public sector projects before 2020 and GDP expected to grow 4.6% in 2010, according to EFG-Hermes. The country is building six 鈥渆conomic cities鈥�, the first of which is the SR300bn (拢50bn) King Abdullah near Jeddah. It is spending at least 拢4.7bn on schools and universities and has 7,406 hotel rooms under construction.

The main impact of the global downturn on construction in Saudi, Qatar and Abu Dhabi in 2010 will be lower fees for consultants 鈥� they are down between 10% and 20% as clients drive harder bargains.

Everywhere else

Brazil鈥檚 winning of the 2016 Olympics, combined with hosting the 2014 World Cup, will boost the country鈥檚 already blossoming market. The IMF has forecast that the country鈥檚 GDP will grow 2.5% in 2010, but it is estimated that up to 拢30bn will be spent on infrastructure for the two events, including 拢1.5bn on constructing and modernising 12 stadiums, 拢1.4bn on expanding and modernising airports across the country and up to 拢10bn on improving and expanding urban transport systems in the 12 host cities.

Mexico also looks promising. It is predicted to grow 3% in 2010 and has a 拢226bn PFI programme including projects to build railways, water treatment works and airports, plus further giant programmes to construct everything from prisons to schools.

China and India also offer opportunities. Spurred on by its government鈥檚 cash injection of $586bn (拢53bn), some of which will fund infrastructure projects, China鈥檚 GDP grew 8% this year and is predicted to do the same in 2010. Atkins is among the firms that see good prospects in key sectors of this market during 2010.

Meanwhile, Hugh Blackwood, chief executive of Scott Wilson, has said he believes the best opportunities will be in China, Hong Kong and India. He鈥檚 even looking to acquire smaller, specialist firms in these countries. Rem Koolhaas is presumably thinking along similar lines, after opening a 25-strong branch of his practice, Office of Metropolitan Architecture, in Hong Kong in October, a particularly significant commitment, since many architects work overseas from a home office.

Less appealing regions, which were attractive markets before the downturn, are western and eastern Europe. Newer members of the EU, particularly Poland and Slovenia, have the best construction markets in the union, according to EC Harris鈥� research, because they are still benefiting from EU investment in infrastructure. The US may limp ahead after contracting 2.6% last year. Combined with President Obama鈥檚 plans to spend on infrastructure, this should give construction a boost in 2010.

So there is life after Dubai in the overseas construction market, but it involves fewer speculative skyscapers and more sensible, projects, such as transport works, schools and stadiums. Which is no bad thing.

Stalkers

Of course the alternative to geographical expansion is to snap up a rival. The hunt for acquisitions in the consultancy sector is being led by US firms such as Aecom, CH2MHill and Jacobs, which are all seeking to take advantage of the low valuation of UK firms to build their presence in the British market. Firms that could be in their sights include consulting engineers, such as WYG, which has had a turbulent year, and Scott Wilson. They are also understood to be eyeing some of the UK鈥檚 largest QS and project management firms, including Davis Langdon, EC Harris, Turner & Townsend and Cyril Sweett. The chances are good that at least one big UK name will succumb during the year. But also expect a flurry of smaller deals from UK companies, particularly in niche areas such as nuclear.

The appetite for deals among contractors is a lot less, but one company worth watching is Balfour Beatty. Its purchase of US engineer Parsons Brinckerhoff in November was a clear indication that its transatlantic focus is sharpening, but it is still up for a bargain in the UK 鈥� as its surprise 拢10m purchase of Doncaster-based Strata Construction on Christmas Eve showed.

In the housebuilding sector, much of the intrigue lies in what Lloyds, having taken over HBOS, will do with the latter鈥檚 housing portfolio, which includes Cala Homes, Gladedale and Crest Nicholson. It鈥檚 a good bet it will divest itself of at least one major interest in the latter part of the year. Persimmon has already said it is on the hunt for acquisitions, and will be on the look out for bargains.

Spoiler alert!

What we will definitely see in the international market: Abu Dhabi will continue to bail out Dubai.

What we might see: Three large UK consultants will open offices in Rio.

Unlikely plot twist: Qatar will buy Dubai鈥檚 (undeveloped) Palm Jebel Ali for a nominal price and turn it into a conservation centre for endangered species.