黑洞社区

Only the foolhardy, and maybe certain coalition ministers, would predict 2013 to be anything above 鈥済rim鈥� for the construction industry. The UK economy remains sluggish and, while the government announced some Keynesian stimulus measures in last year鈥檚 autumn statement, the emphasis remains on fiscal austerity.

The rights and wrongs of that approach can be debated ad infinitum. While shadow chancellor Ed Balls urges the government to borrow further to fund housebuilding and infrastructure works, thereby creating employment and putting money back into the wider economy, the chancellor George Osborne can reply with some justification that Labour is only keen on Keynes during a recession. In the good years - a time when Keynesian economics advocates fiscal retrenchment in order to build up a war chest for the inevitable bust - Labour was clearly reading other economics textbooks.

All of this is, of course, rather academic. The coalition鈥檚 sat nav is fixed on austerity and we can expect that its spending plans will continue largely as advertised. According to Cenkos analyst Kevin Cammack: 鈥淚t鈥檚 abundantly clear that government, be it central or local, doesn鈥檛 have any money. And it certainly doesn鈥檛 have the courage to try to spend its way into a recovery.鈥�

That means another lean year for construction, especially when combined with a forecast growth in GDP of just 1% in 2013, according to the Office for National Statistics (ONS), following an expected overall contraction of 0.5% in 2012. However, there are some opportunities to be found in the UK and further afield. Here, 黑洞社区 identifies the few glimmers of hope on 2013鈥檚 horizon.

Dark days

First, the bad news. According to Experian鈥檚 latest forecasts, published exclusively in 黑洞社区 this week (see page 13), construction output will continue to contract in 2013, although at a slower rate than in 2012. Last year, output shrank 8.5% and is forecast to contract by a further 3.5% this year before returning to modest growth of 0.8% in 2014.

The most recent Construction Products Association (CPA) report makes it clear that central government funding cuts are responsible for this year鈥檚 fall in output, forecasting 0.7% growth in private sector output but -6.2% from publicly funded projects, including PFI. (While the report was produced before December鈥檚 autumn statement, which saw the successor to PFI eventually unveiled, Noble Francis, CPA鈥檚 economics director, says that the chancellor鈥檚 announcement makes little difference to the figures, due to the time it takes for PFI projects to be procured.)

When you look at the commercial market, outside London, nothing is happening

Mike Peasland, Balfour Beatty

The CPA predictions are backed up by anecdotal evidence from industry. Mike Peasland, chief executive of Balfour Beatty Construction Services UK, says that 2013 will be tougher than 2012, and the firm has already prepared for these lean times.

鈥淚 don鈥檛 see any sign of growth until 2014,鈥� he says. 鈥淥ur restructure [in autumn last year] was done very much with this period in mind. It was about getting us ready for the market that we鈥檙e in. This is the new normal and if you鈥檙e going to play in this market you鈥檝e got to be the right size.鈥�

The situation is arguably even worse for specialist contractors. According to Rudi Klein, chief executive of the Specialist Engineering Contractors鈥� Group, a high rate of attrition among subcontractors will continue this year. 鈥淭here is a common consensus that 2013 will be a make or break year commercially,鈥� he says. 鈥淔irms have cut as much as they can, and they can鈥檛 go to the banks [because they aren鈥檛 lending]. If things don鈥檛 improve, companies have nowhere else to go. It really is going to be one of the worst years yet for company survival.鈥�

Of course, the flipside of having to wait until 2014 for growth is that at least it will come eventually. Here again, the CPA鈥檚 figures are backed up by reports from the sector. The first part of the industry to see the fabled green shoots is always likely to be architects and consultants, and RIBA president Angela Brady urges caution, but says that the mood among her members is better than it has been for years. According to the RIBA鈥檚 latest Future Trends survey, firms are more confident about future workloads, and the employment market within the profession has stabilised after years of ever-worsening figures. What鈥檚 more, firms are employing 5% more graduates than 12 months ago.

Demand for housing

However, in other sectors, there are some signs of hope. 鈥淚t will be a slightly better year in terms of housing,鈥� says Cenkos鈥� Cammack. 鈥淭he remarkable thing about 2012 was how robust the housing market was. The government鈥檚 limited fire power has all been directed at housing. My guess is that 2013 will be a similar, if slightly weaker, year.鈥�

Housebuilders have little incentive to radically increase the number of units built

Noble Francis, CPA

At the CPA, Francis also highlights the housing sector as an area of opportunity, although he says that growth will be far from dramatic at about 5%, and will be reliant on the private sector: having fallen by 30% in 2012, investment in affordable housing by the Department for Communities and Local Government is set to fall by a further 3% this year. 鈥淭he major housebuilders are actually rather content at the moment,鈥� says Francis. 鈥淭hey鈥檙e gradually increasing the number of homes they build, primarily in Greater London and the South-east.鈥�

Francis says the volume housebuilders are unlikely to increase building by more than 5% for two reasons: first, having cut staff after the 2008 crash they lack the capacity to do more; and, secondly, it isn鈥檛 in their long-term interests to do so. 鈥淚f, for instance, they doubled the number of homes they build it would seriously affect the value of the land they own and profit margin on each unit they build,鈥� he says. 鈥淭hey actually have relatively little incentive to radically increase the number of units they build.鈥� What鈥檚 more, the industry can expect no such return to growth from small to medium-sized housebuilders, says Francis, due to the fact that they find it harder to access development finance and generally don鈥檛 have a five-year supply of land with planning permission.

Global growth

For the firms that have the capacity, the greatest opportunities for securing new work in 2013 lie beyond the UK. According to the RIBA鈥檚 Angela Brady, architectural practices are continuing to export their services to the likes of China, Brazil and north Africa, while she has identified Turkey, Colombia, Indonesia and Vietnam as countries with opportunities for UK companies.

At Gleeds, Richard Steer agrees that the best prospects of growth lie abroad. 鈥淭he eurozone is a bit of a dead duck,鈥� he says. 鈥淏ut America is starting to pick up - housing figures are improving - and I think that [Barack] Obama will do something to make sure that the economy picks up because apart from anything else he has nothing to lose [given that he can鈥檛 serve another term].鈥� Steer adds that while China鈥檚 projected growth of 7.8% for 2013 pales in comparison to figures achieved in recent years, it is still comparably robust, and that work is also to be found in the UAE, Singapore and Malaysia.

However, perhaps the most telling statistics come from Mike Peasland at Balfour Beatty. He says that the company has already moved from its traditional base of securing 20% of its work from foreign markets to 50%. And he adds that within the foreseeable future less than 40% of the firm鈥檚 work will be domestic, with the mature markets of Australia and Canada, as well as the emerging markets of India and Brazil, his main focus.

So, the picture for 2013 is pretty dark, but a peek behind the headline figures reveals that there are opportunities out there, even for firms that can鈥檛 scout for work abroad. The industry should also remind itself throughout the year that the prospects of growth are real and not as distant as they have been. Output is forecast to return to growth in 2014, not just in the private sector, but also from public works, albeit minimally.

And there鈥檚 one last thing to be cheerful about: even gradual growth means that this article will probably be the gloomiest look-ahead-to-the-year-to-come report that you will have to read for a long time.