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No end in sight for eurozone woe

The outlook for UK architects working on the continent remains bleak despite fears over a Greek exit from the euro having eased after the election of the New Democracy party and the formation of a pro-austerity coalition last weekend

With the Spanish government set to ask for a financial bailout next week and more woeful eurozone construction output figures showing a 2.1 per cent drop in the sector this month, continued volatility in the European market is inevitable.

This unstable picture is highlighted by new data from RICS, predicting a five per cent fall in the region’s construction output this year, with similar contraction tabled for 2013.

According to 3DReid, which is linked with Madrid-based practice Fenwick Iribarren, the first signs of trouble came five years ago.

The Spanish firm noticed that retail and commercial work was drying up from 2007. But the most visible sign came in 2009, when construction of the practice’s flagship 75,000-capacity stadium scheme for Valencia Football Club ground to a halt.

While much of the world then began to recover from global economic shockwaves that started in the US, the situation in Europe worsened.

Tim Bowder-Ridger, managing director of London and Brighton-based Conran & Partners, recalls how the escalating crisis of confidence in the euro hit the industry in the summer of 2011.

Schemes across the continent had the brakes slammed on as clients lost confidence

‘We had a number of very strong projects about to be triggered in Europe,’ he said.

‘But a number of schemes across the continent had the brakes slammed on as clients lost confidence. In Italy, we had a large retail scheme just outside Rome that was stopped.’

A year on, there is little sign of the crisis abating.

Madrid-based Broadway Malyan director Jorge Ponce said he was monitoring the debt crisis on a ‘daily basis’.

‘We are working in a much more cautious way, being realistic in our outlook and making sure we are happy with our accounts every single month,’ he said.

The practice cut its overheads and realigned its focus in 2009 to prepare for the stormy waters ahead.

‘Some sectors just stopped, such as residential work,’ said Ponce. ‘But we have focused all our efforts on other sectors, such as retail.’

Finding the right clients has also been critical over the past three years.

‘You have to find people intelligent enough to create business even in a crisis,’ said Ponce. ‘Primark is one of our clients and it is doing fantastically well because of its business model.’

The type and sector of work undertaken can be important to survival. Conran & Partners has focused heavily on masterplanning in Europe.

‘With long-term timeframes, masterplanning is relatively recession-proof, and represents healthy work for us,’ added Bowder-Ridger.

Much of the development pipeline remains heavily dependent on clients having the confidence to ‘press the button’.

Sean Clifton, associate director at Jestico + Whiles, said: ‘We are finding that clients are, month-on-month, postponing making final decisions to actually progress the projects where significant investment in fees is required.

‘Projects that are on site are continuing, but clients seem hesitant to invest in future work and future phases of projects.

Developers based only on the continent seem more confident than their UK rivals

‘Developers based only on the continent seem more confident than their UK rivals, however we certainly feel more uncertainty and hesitancy from our clients than we did six to nine months ago.’ Clifton said he had heard of a number of UK practices further reducing staff numbers in their European offices in recent months.

‘Nevertheless,’ he said, ‘we remain optimistic and have strategically extended our workload in Asia, Russia and the Middle East instead.’

Capita Symonds has focused its European operations on Poland. Peter Wislocki, regional director of the firm’s ESA subsidiary, said the Polish market had remained ‘remarkably resilient’ compared with much of the continent.

‘Many of our clients are proceeding with office and retail developments, although costs are being squeezed hard,’ he said.

But what next for the eurozone? Some economists believe a break-up is unavoidable, with at least one or two countries returning to their own currencies.

While this may mean a short-term shock as economies adjust, Ponce believes a change in currency would accelerate the export of skills to developing countries.

Meanwhile a 3DReid spokesman said a devaluation of local currencies could mean a return of cheap holidays, mass tourism and an increase in leisure projects.

Ben Adams, director of Ben Adams Architects, suggested the positive side to the eurozone crisis could be more work in London. He said: ‘London is seen as a safe haven from the euro and local property values reflect that in many different sectors.’

There is a feeling among those architects who have survived the storm in the eurozone thus far that they have at least seen off the worse. They have fewer competitors for one thing, and have learnt to adapt.

The smarter and luckier practices seem to be taking opportunities from the crisis, but none have gone so far as to recommend Greece or Spain to UK firms not already there.

Other comments:

A spokesman from Dyer said: ‘The current issues in the Eurozone are having a significant impact on developer confidence across the globe.  Our biggest issue the stop/start nature of the projects that we secure.  This is compounded by each recommencement requiring a rapid response.  The biggest issue in the UK continues to be funding with developers unable to secure an adequate percentage of their development costs from the banks and insufficient capital available from other investors to bridge the gap.

Marcus Lee, director, Glenn Howells Architects: ‘ Suffice to say we have had a steady stream of young Spanish architects at our door with CVs.’

Construction_output_in_Europe

Question and Answer with RICS’ senior economist Josh Miller

How has the debt crisis affected clients across Europe?
Construction output in the euro area is about two per cent below year-ago levels and about 22 per cent below its peak in December 2006. However, there are regional divergences. In Germany output is five per cent above its last peak; in Spain, output is 55 per cent below its peak.

What is your advice for UK architects working in the eurozone or considering it?
It would take a brave firm of architects to set up European operations in the current environment, or to expand an existing operation. I would consider some of the Scandinavian markets plus some central European markets such as Austria, the Czech Republic and Slovakia.

How do you think the crisis will develop from here?
The market’s attention is turning increasingly to Spain, whose banking sector faces serious challenges, to put it mildly.

What are the best and worst case scenarios for UK architects working in Europe?
The best case is that Greece stays in the euro, because this would avert a confidence crisis in the single currency. The worst case is that Greece exits. An exit would almost certainly be disorderly and sink the region back into recession. Households and businesses would then delay discretionary spending, which would weigh heavily on the construction sector.

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