By continuing to use the site you agree to our Privacy & Cookies policy

Points of order

Our quarterly look at the construction industry examines the latest costs and trends and considers future opportunities

Compared with the previous three months, the headline figure for the total volume of orders for new construction work fell by about 0.6 per cent in the third quarter of 2000.

However, the second quarter of last year was exceptional, with orders in the public sector running at more than 30 per cent higher than in any of the five previous quarters. Led by continued success in the private commercial sector, the total volume of new work orders in the third quarter of 2000 increased by about 15 per cent compared with the same period in 1999.

While orders for new work in the public sector (excluding infrastructure and social housing) fell by approximately 32 per cent in the quarter, they grew by more than 13 per cent compared with the corresponding period of 1999. Infrastructure orders increased by about 27 per cent during the quarter; 40 per cent higher than the corresponding period of 1999.

Further public sector and infrastructure growth is expected as a consequence of government expenditure plans for the next two years.

The Department of Transport, Environment and the Regions (DETR) reports that new orders for public sector housing and housing association work increased by 7.5 per cent during the quarter. However, there is, as yet, little evidence to suggest that government expenditure targets for public housing will be achieved. While expenditure is set to rise by 48 per cent to £2.1 billion, the total volume of orders for work placed in the current financial year is nevertheless down (by about 5 per cent) compared with the equivalent two quarters in 1999.

Private house building activity, according to DETR statistics, fell for the second quarter in a row. Third quarter orders for new work fell by almost 4 per cent when compared with the corresponding period of 1999. Prospects for this sector are uncertain as the private housing sector continues to slow down and house prices level off.

New orders in the private commercial sector, which comprises retail and office space, increased by 3.5 per cent in the quarter; about 23 per cent higher than the corresponding period in 1999. This growth is not, however, forecast to continue in the long term. The Royal Institute of Chartered Surveyors reports that while previous demand for office accommodation has led to strong development activity in London and the South East, current demand shows signs of a slight slowdown.

The retail sector continues in decline.

The manufacturing sector is also in the doldrums.Orders for new construction in the private industrial sector were down by 7.2 per cent on 1999's third quarter.Any medium- to long-term improvement in this sector is not anticipated.

According to DETR statistics, all English regions, with the exception of the Midlands and the North West, saw some drop-off in the level of new orders for construction in the quarter. While the South East region (including Greater London) saw orders fall by about 14 per cent in the third quarter of last year, it should be noted that the second quarter of 2000 was exceptional, with the value of new orders running at about 42 per cent higher than what had been the norm for some time.When compared with the equivalent quarter of 1999, the level of orders for new work in the South East grew by about 22 per cent.

While all economic sectors have been affected, the North East has seen the greatest drop-off in workloads. New orders for construction fell by, on average, 26 per cent in the quarter and by 21 per cent when compared with the equivalent three months of 1999. In contrast, workloads in the North West and Wales are relatively buoyant and running at about the 1999/2000 norms. Driven by substantial increases in infrastructure expenditure, the East and West Midlands have seen significant growth in the level of new orders for construction - increasing by, on average, 45 per cent over the quarter and by 47 per cent when compared with the corresponding period in 1999.

Reversing the previous downward trend, Scotland saw a marked increase in new orders for construction in the third quarter of 2000; 39 per cent when compared with the previous three months and by 26 per cent with the corresponding period in 1999. The main generator for this growth has largely been a steep increase (49 per cent) in the level of new orders for private commercial work. Orders for work in the public and infrastructure sectors, which fell during the second quarter of 2000, recovered their position during the third quarter.

Construction cost increases continue to operate above levels found in the general economy. Building costs increased by 5 per cent in the past year and are expected to rise by about 3.2 per cent next year.General underlying inflation levels are currently about 2.8 per cent.

Material costs rose, on average, by 1.2 per cent in the second quarter of 2000 when compared with the preceding three months and by 1.8 per cent over the year. This increase is about 1 per cent below the general inflation level over the same period. In contrast, construction sector earnings rose by an average 6.8 per cent in the year to June 2000. This figure is approximately 1 per cent higher than earnings trends in the wider economy.

The Building Cost Information Service (BCIS) reports that demand for all trades is buoyant. Bricklayers, plasterers and carpenters are currently the most difficult to secure.

In the year to June 2000, tender prices rose, on average, by 3.3 per cent. The BCIS forecasts that tender price inflation will rise in the next year to level off at about 1 per cent above levels prevalent in the general economy and by a further 1 per cent in 2002.

In the five years between 1990 and 1995, and on average, material prices increased by about 20 per cent. In the following five years to 2000 material prices increased by a further 16 per cent, making an overall increase of 39 per cent in the 10-year period. This fairly steady overall growth in material costs is roughly in line with general inflation. In the same period overall building costs rose steadily by about 38 per cent and tender prices increased (though erratically) by approximately 37 per cent. Costs for different materials types have not, however, risen consistently with each other. For example, costs for concretework and masonry materials fell by approximately 20 per cent during the period between 1990 and 1995, whereas joinery material costs increased by about 30 per cent in the same period.

Labour costs are very largely driven by the prevalent state of the construction labour market. The five-year period to 1995 was one of decline for the construction industry.

Labour costs fell by 14 per cent as the workforce dropped in numbers by about 500,000. The past five years have seen a reversal in the fortunes of the industry. Demand for labour is buoyant and skill shortages for certain trades and regions are occurring.

Between 1995 and 2000 labour costs rose by 45 per cent, representing a 25 per cent increase in the 10 years between 1990 and 2000. Partly in consequence of the steeply rising costs of site labour, and partly in consequence of tighter construction project timescales, there have, in recent years, been concerted moves towards off-site pre-fabrication.

The RICS Commercial Market Survey reports that the demand for office property is beginning to cool.

The central London market, however, continues to be strong, although at a lower level than early months of 1999. Office rental growth has slowed similarly. According to data from Insignia Richard Ellis, rental inflation fell during the third quarter of 2000 to 0.8 per cent from 1.4 per cent in the second quarter.

Demand for high street retail property declined during the third quarter of 1999 as consumer demand fell and prices of consumer goods dropped. Rental inflation for high street retail property has slowed down, accordingly. Insignia Richard Ellis suggests rental inflation fell during the third quarter of 2000 to 0.8 per cent from more than 1 per cent in the previous quarter.

While there is noticeable variation in the house price data issued in October by the Nationwide (reporting house price rising by 0.8 per cent when compared with the previous month), and the Halifax (reporting a fall of 0.4 per cent), both surveys confirm the overall slowdown in the housing market. The RICS reports that one effect of this slowdown has been to significantly improve the affordability of entry-level housing, and that first-time buyers (absent for some time) should now be able to re-enter the housing market and thereby begin to stabilise prices.

Della Hughes is an associate director of the MDA Group. E-mail dhughes@mda group.com

Have your say

You must sign in to make a comment.

The searchable digital buildings archive with drawings from more than 1,500 projects

AJ newsletters