London developers fighting the construction industry Brexit blues

UK construction firms have been figuring out how to prepare for a no-deal Brexit for some time, but now that Boris Johnson is PM, most are even more worried as orders are reaching new lows.

The idea of crashing out of the EU without a deal frightens some construction firm managers.

One reportedly said the consequences would be devastating for the industry. Another, in a meeting when Johnson’s victory was announced, said the news was greeted with universal groans.

The outlooks and responses of the office construction sector is quite different from those of the homebuilding sector, however.

London office builders buoyant

Office construction recently hit a three year high, according to the latest biannual London Office Crane Survey. This lists 37 new schemes commencing in the last six months, most of them in the City of London.

Credit: Deloitte

They have been given confidence by the decisions of technology giants like Alphabet Inc to open new bases there.

Outside the Square Mile, in Piccadilly Circus, Land Securities Group Plc is redeveloping the building at 1 Sherwood Street, with no tenants lined up in advance.

And Bloomberg reports that British Land Co is planning its largest-ever development in London’s Southwark borough, and will decide before Brexit deadline day of October 31 whether to start another large office project in Shoreditch.

“London’s office market remains resilient in the face of uncertainty as we witness an encouraging increase in new construction starts,” said Mike Cracknell, a director at Deloitte Real Estate, which conducts the survey.

“This is testament to developers’ continued confidence in London’s office leasing market long term.”

Housing developers sinking

But confidence in the housing market is moving in the opposite direction. All but two of London’s 32 boroughs saw falling prices in the past year, by an average of 2.5 per cent for new homes, according to Rightmove. Real estate agent Foxtons called the situation “very challenging”.

London’s house price rise seen over recent years has finally reached its limit.

It was driven by overseas investors who, in 2015, accounted for about 80 per cent of new-build sales and priced out locals. Today, their proportion is around half that.

Most of the sales happening now use the assistance of Help to Buy, a government-backed scheme offering a 40 per cent equity loan in London and a 20 per cent loan elsewhere to buyers of new homes worth up to £600,000 (AUD$1.07 million) – a typical price for a new two-bedroom apartment in the capital.

In the country as a whole the average price drop is 0.2 per cent in the last year. Fewer homes are coming onto the market, and it’s taking longer to find a buyer.

But in areas like Wales and the Northwest, where prices are traditionally much lower, prices are rising as the overall market equals out.

New housebuilding well below target

In the run-up to Brexit, developers are building fewer new homes with a nine per cent decrease compared to the previous three months, according to government figures. There was a similar decrease a year earlier.

Annual new home build starts totalled 169,770 in the year to March 2019, a 6 per cent increase compared with the year to March 2018, but well below the government’s promised target of 300,000.

The rate of growth for residential construction meanwhile has halved, from 11.9 per cent in 2016/17 to 6.4 per cent in 2017/18.

The social section is picking up some bargains

The price doldrums maybe good news for the social sector: builders are apparently offering difficult to sell homes to large housing associations at discounts of up to 15 per cent.

Developers getting creative

The reaction of some developers is to become more imaginative, in a bid to attract young, millennial housebuyers.

Knight Dragon, a Hong Kong based developer managing the £8.4 billion (AUD$15.09 billion) Greenwich Peninsula project, is building 15,000 homes across 150 acres of the riverside Greenwich Peninsula over the next 20 years.

The Tide will be a park along the bank of the Thames.

They are sponsoring street art, exhibitions, and street festivals like last month’s Turning Tide festival near the O2 arena, with artists and performers, in an effort to make the area seem like a cool place to live.

They’ve commissioned an elevated linear park called The Tide along the bank of the Thames from the same architects that delivered New York’s High Line, Diller Scofidio + Renfro, working in collaboration with Neiheiser Argyros.

The first kilometre-long stretch of the eventual five kilometre walkway opened on 5 July. It goes from North Greenwich tube station to The Jetty, a community events space on the waterfront that features public art from the likes of Yoko Ono and “London’s longest outdoor dining table”.

It will eventually loop through seven neighbourhoods on the peninsula. The platforms are up to nine metres off the ground, and feature native trees, including silver birches and pines.

Giving a real sense of place to a new development is something many believe developers should do anyway.

What next?

What would a longer term PM Johnson do for the industry? When Johnson was mayor of London, housing was one of the few areas he had control over, but he concentrated on supporting affordable home ownership rather than affordable homes for rent.

He also relaxed planning obligations, making it easier for developers to build more.

Therefore longer term, order books could improve – at least for the build to buy market – but standards may fall, with the environment and social sector suffering.

There’s no clue yet as to whether he will heed the recent call by MPs to ramp up home energy efficiency refurbs as being vital for the UK to reach net-zero carbon by 2050.

The news of his prime ministership has seen the value of the pound falling on international exchanges and deteriorating investor confidence, with the result that Britain’s share of international investment funds is dropping to new lows, even below those seen just after the 2016 Brexit referendum, from a peak of 11.5 per cent in 2011, to 7.87 per cent as of July 31, according to Copley Fund Research in Auckland, New Zealand.

July also saw a sharp drop in new construction orders and business optimism falling to its lowest ebb since November 2012.

Commercial construction was the worst performing category, followed closely by civil engineering.

This is the fourth successive monthly fall, the longest continuous period of decline recorded by IHS Markit since 2016, and job losses have resulted.

For the foreseeable future, the only certainty is more uncertainty.

David Thorpe is the author of the books The ‘One Planet’ Life and the new ‘One Planet’ Cities.

Leave a comment

Your email address will not be published.