Double dip? Architects don't think so
Construction output shrank by a whopping 5.2 per cent in the second quarter of this year, but some architects say enquiries are on the rise
The latest government figures reflect continuing woe for construction as the sector dragged the overall economy deeper into recession.
Comparing the second to the first quarter of this year, construction’s 5.2 per cent decline was worse than any other sector with production and services recording 1.3 per cent and 0.8 per cent falls respectively.
The sector is now almost 10 per cent below where it was last year, having witnessed a similarly strong decline of 4.9 per cent between the last quarter of 2011 and this year’s first quarter.
With work on major projects such as The Shard and London Olympics draw to a close, the sector’s immediate prospects appear bleak.
Overall GDP was down 0.7 per cent, defying analysts’ predictions of a 0.2 per cent fall and signalling the UK remains in the depths of recession
The Office for National Statistics, which published today’s estimates, claimed the extra bank holiday for the Queen’s Diamond Jubilee in June may have skewed the results. Unprecedented wet weather was also blamed for the bad performance.
ADP chair Roger FitzGerald said there was a time-lag between what architects experience and the construction industry, adding this latest data ties-in with a dip in workloads experienced at the end of last year.
He said: ‘Since then we have seen a slow but distinct improvement and we have actually been recruiting and investing in Revit. Margins remain very tight and the situation still feels extremely fragile. Banks remain nervous and the Government needs to invest more in capital projects.’
Piers Taylor of Invisible Studio said development as he knew it in past years had ‘ceased’. He added: ‘In itself [this is] not necessarily a bad thing as so much of it was so poor.
‘We’re noticing that people who do want to do projects in this recession are more cautious, less cavalier, and more committed to doing appropriate and interesting things.’
A spokeswoman for Dexter Moren said opportunities were out there and the capital remained a ‘very strong market’ because it was fuelled by significant foreign investment.
She said: ‘There is huge pressure on fees and it is frustrating that some practices are devaluing their services. It’s important to be competitive in the current market but equally important to build strong relationships with clients so they understand the added value that you can provide.’
Jestico + Whiles director Heinz Richardson said: ‘It’s disappointing to see a drop in construction output given the knock on effect our, relatively small, sector of the economy has – it’s said that every £1 invested in construction generates £3 of investment in other sectors. That said, as GDP has dropped it is not surprising.
‘Historically, the construction sector has led the economy out of previous recessions. Although this one is unlike any I’ve experienced before, I see no reason for this not to be the case again, so the Government needs to concentrate on finding ways to boost construction – something which can address a whole host of other issues, from housing shortages to much needed new infrastructure.
‘We’ve actually seen an upturn in enquiries from the residential sector, but this is confined to London and I suspect stems from an “Olympics effect” and well-documented foreign investment in the capital. We’re actively searching out new opportunities overseas, aiming to build on our existing international portfolio and our Prague office. There’s certainly work out there, but you do have to work hard to find and secure it.
‘There’s undoubtedly pressure on fees across all the sectors we work in. It’s a competitive environment and everyone is keeping a close eye on costs.
‘We’ve still got some way to go I think before we see signs of a sustained recovery. But, in the case of Jestico + Whiles, we have a healthy workload currently and we will work hard to sustain that.’
Berman Guedes Stretton director Bruce Cockburn said new enquiries remained strong but the gap between first approach and first invoice had grown.
He said: ‘Fees are also becoming an issue with feasibility studies and masterplans commonly being “bought-in”. Work on site is being done with jittery contractors working on low profits leaving only the bit in the middle to make any financial headway.’
He added: ‘Staff numbers have increased steadily over the past 2-3 years. We entered the banking crisis period with 35 staff and are now in the 50’s. Is there a light at the end of tunnel? More like fog; nobody could say with any certainty what is next, but if or when comfortable trading conditions resume I imagine clients will be used to a different relationship with architects and it’s hard to revert.’
John Robertson, director of John Robertson Architects added: ‘[We are] definitely noticing signs of a slow-down: after a very busy 2011we notice fewer solid enquiries during 2012. The Euro-zone crisis continues to dent confidence across the board and is causing a lack of tenant demand for new offices, although the investment market for fully let offices in central London is in pretty good shape.
‘The one area which is moving well is new high-end residential in central London where there is continued demand because London is seen as a safe-haven for many overseas investors. We think there will be a prolonged period like this and we doubt if there will be much of an upward movement in the UK before 2014 and this will only be if the government commits to major new infrastructure work.
‘The pressure on fee levels is considerable with early conversion to lump-sum fees at low margins the norm—percentage fees are only used for benchmarking purposes. We find it difficult to contemplate how it can be possible to provide a proper service at some of the fee quotes we are losing out to, which indicates certain firms are buying work.’
Chris Williamson of Weston Williamson said it was ‘impossible’ to generalise about market conditions on the basis of such figures but agreed fees were now ‘very low indeed’.
He said: ‘The economy is very patchy and some sectors are still doing well. Some architects are doing well where they have a spread of work and their projects are progressing,but the slowdown does put pressure on fees as there is much greater competition.’
Teatum and Teatum, via Twitter, said: ‘There is no money being lent by the banks to developers or individual clients- without the finance very little happens.’
Tom Holbrook, director at 5th Studio, said: ‘This is a deeply troubling fall: the government now have to change course and focus on growth. We desperately need a New Deal investment programme in infrastructure, particularly green infrastructure, to get the economy moving.
‘Instead of that, we are finding that projects that are site-ready, such as our fatwalk project, a core plank of creating the Olympic legacy in East London, are being cancelled through lack of funding. That project demonstrated huge public benefit in return for investment.’
Past RIBA president Owen Luder said: ‘I am not in practice, I do not employ staff, I do not need to go out and find work. But I lived through every boom and bust since the war and not only survived but prospered. The next two years is going to be very tough for architects. The present bid schemes are largely on site and new big projects to replace tem not on the horizon. The saving grace is that architects are among the first coming out of a recession. So sit tight and remember-
‘Cash is king. Preserve your cash and protect you cash flow – you go out of business when you run out of cash – however much work you have. If you cut your fees you reduce your cash flow. And – however difficult it is – there is always some work to be had – you just have to work harder to get your share of it. Have you got a niche skill and if so can you target the wealthy who will hire you form it?’
Glenigan economics director, Allan Wilén, commented: ‘The sharp 5.2 per cent fall in construction output during the second quarter is a stark illustration of the tough trading conditions currently facing the industry as cut backs in public sector investment over the last two years flow through to less work on site. Public sector projects will remain scarce during the near and medium term; government funding remains tight and Glengian has recorded a continued decline in the number of public sector projects in the development pipeline.
‘In contrast Glenigan has recorded an encouraging pick-up in the value of private housing, office and industrial projects starting on site during the first half of 2012. Furthermore the value of such schemes securing detailed planning approval has also strengthened and these sectors are poised to be important growth areas for the industry over the next 18 months. However, this growth is dependent upon a strengthening in investor and consumer confidence, both of which remain fragile. Renewed set-backs in the wider economy or financial markets could jeopardise the forecast private sector upturn.’
He added: ‘The improving outlook for the commercial sector should offer new opportunities for architectural practices as developers bring forward new projects and revisit previously shelved schemes. However, the decline in government funded projects will remain a drag on overall architectural workloads.’
Peter Morris of Peter Morris Architect said: ‘Not wanting to play down the impact of what a fall in GDP will have on peoples lives, but GDP is not a satisfactory measure of society, as it is purely financial. It does not take into account social capital. I look around me and I can see many white elephant developments, from the boom years. Is it time to take stock? Are we happier with more money? Yes, of course, but up to a point.
‘Studies have shown that once we have achieved what we perceive to be the right amount, then money has little impact upon our well being. What then matters is things like our travel to work, friends, knowing our neighbours or job satisfaction. What role can Architects play? Well, as Cedric Price once said, not every solution ends in a building. Architects need to think creatively about how best to help communities get more from less. For instance PMA are currently working with groups in Bomley-By-Bow to develop a series of events to help instigate public action and fund raising. We hope this bottom up approach will also mean our solutions will be what the community truely wants and therefore will last longer than the average white elephant.’