Case Study Construction for education set to withstand downturn Battling against political uncertainty and an economy in flux, the building industry soldiers on. Industry analysists warn of difficult times ahead but Construction experts Glenigan reassure that construction for education is expected to withstand the worst of the downturn this year. <strong>School</strong> <strong>Building</strong> Magazine Editor Joe Bradbury catches up with Glenigan’s economics director Allan Wilén to find out more: The current state of affairs Business concerns over the economy and Brexit and a slowing housing market make for a less than encouraging backdrop for Glenigan’s Construction Industry Forecast for UK construction activity. But although the value of construction project starts is predicted to fall by 6% this year and a further 4% in <strong>2019</strong>, the forecasts also point to a number of opportunities for construction amid the uncertainty. Growth markets offering new tender opportunities include secondary schools, universities and student accommodation together with build to rent and health. Civil engineering contractors also stand to benefit from the start of work on some major infrastructure projects. Meanwhile, the Midlands and the North are set to be the bestperforming regions over the next two years. Plus, although the UK political scene might appear chaotic, a series of economic and financial signals emerged in the run-up to Christmas last year which offered some grounds for encouragement for the construction industry in <strong>2019</strong>. A few months into <strong>2019</strong>, business and consumer confidence remains somewhat fragile, despite the economy still being set to grow in <strong>2019</strong>. Interest rates are likely to remain low and inflation is set to ease towards the Bank of England’s 2% target. A year-end report from KPMG forecast that the economy will grow by 1.6% in <strong>2019</strong>. Moreover, overall investment which slumped to just 0.3% in 2018 is forecast to rebound to 1.6% in <strong>2019</strong> and 1.7% in 2020. This in turn should help recovery in the industrial and commercial construction sectors. However, in spite of this growth, Glenigan expects the underlying value of education starts to slip marginally into decline in <strong>2019</strong>, before rebounding next year. Educational building output “Universities’ development plans and rising secondary school pupil numbers promise to drive investment in expanded and new higher education and secondary school facilities,” explains Glenigan’s economics director Allan Wilén. The reason for this confidence is that the planning pipeline for the education sector is strong. After a 5% fall in 2017, the underlying value of education projects securing planning permission rose by 13% last year. <strong>School</strong>s and universities University work in the pipeline is particularly buoyant. Construction industry research produced by Glenigan last year showed that the Russell Group of 24 leading universities had secured planning permission for £950 million-worth of work in the 12 months to Q2 2018 alone. More schools work is also coming on stream but through smaller schemes. In 2018, the Department for Education (DfE) awarded just over £1 billion-worth of contracts for construction work according to Glenigan’s research. This total was up 74% on 2017 and makes the DfE the industry’s third biggest client. The DfE is starting to focus on slightly smaller projects with the average contract awarded in 2018 falling to £8 million from £8.8 million in the previous year. Despite a slight fall in starts in the education sector as a whole, the value of school projects starting on site rose by an estimated 9% in 2018. In the first 10 months of 2018, there was also a 34% rise in detailed planning approvals for schools. Glenigan expects a rise in schools projects starting on site of 8% both this year and in 2020. Short turnaround In the short-term, the education sector is unlikely to see any major growth but the strong pipeline of work with approval augurs well further out. Mr Wilén adds “We expect political uncertainties and funding restrictions to continue to delay the realization of new projects, but the education sector has the shortest median gap between projects receiving planning approval and starting on site of any building sector.” Glenigan’s construction industry research shows that, on average, projects in the education sector take only 19 months between securing planning permission and construction work commencing. So, while this year may see a lull, 2020 will see a recovery and the need to accelerate school projects can be seen in the increasing number of modular schools projects getting the go-ahead. Morgan Sindall is using the Sunesis Mosaic modular model to build a £5 million primary and nursery school at Hackwood in Derby, while off-site specialist Extraspace recently landed a contract to build three education projects in Oldham. While education may withstand the worst of Brexit, some concerns over this impact do exist. Mr Wilén concludes “We believe that increased university investment and rising pupil numbers promise to drive investment in expanded and new higher education and secondary school facilities over the next five years, but this will be tempered by a threat to university budget’s due to the implications of research funds from Brexit.” Tender opportunities for work across Britain’s universities – where the value of planning approvals almost doubled in 2014 and 2015 – are set to remain buoyant as institutions compete for domestic and overseas students. Planning approvals rose sharply in the sector in 2017 and in the first five months of 2018. In summary Glenigan’s Construction market analysis reflects the momentum in the sector. It shows tenders have recently been returned on a £2 million extension to an energy centre at the University of Sheffield (Glenigan Project ID 18064849). Meanwhile tenders are invited for a £3 million extension at the University of Essex, (Glenigan Project ID 18236650) whilst work has recently started on the £14.4 million Cypress office building at the University of Liverpool (Glenigan Project ID 18000368). Secondary school construction projects are also set to expand to meet rising pupil numbers. The value of school projects winning detailed planning approval rose 50% in the first five months of 2018 which should mean more starts next year. The Glenigan Construction Industry Forecast is anticipating that the value of overall education construction starts is set to rise by 11% in 2018 before slipping back slightly by 2% in <strong>2019</strong>. Although NHS capital budgets will continue to be squeezed, health-related construction is set to rise this year. Boosted by an increase in laboratory and research construction projects, the value of health planning approvals rose by 16% to £2.3 billion in 2017. This is forecast to translate into a 15% rise in the value of health sector starts this year before a 6% dip in <strong>2019</strong>. 16 <strong>Spring</strong> <strong>2019</strong> 4157
The value of overall education construction starts is set to rise by 11% in 2018 before slipping back slightly by 2% in <strong>2019</strong>
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