Construction in the Higher Education and Student Accommodation Sector - 5 Key Facts

• Current forecasts are for a substantial increase in capital investment, at over £17.1bn this is around 60% higher than the previous 4-year average.
• In 2013, the private sector formed around 39% of supply, but in 2016 this increased to over 46%.
• Only 18% of students are currently catered for in university-operated halls.
• London is the most undersupplied area in the student property market.
• The outlook for investment in higher education facilities and student accommodation remains positive, as student numbers expected to increase and demand is rising for higher specification facilities.

These facts have been extracted from AMA Research's 'Construction in the Higher Education and Student Accommodation Sector Report - UK 2018-2022' available for purchase now. 

Social Housing Construction & Maintenance Market - 5 Key Facts

• Housing Association completions were down by around 3% in 2016-17.
• Around 68% of social housing completions in 2016-17 were for affordable rent, an increase of around 40% on completions in the previous year.
• Going forward, social housing completions are expected to increase by around 2% per annum to 2021-22.
• Total expenditure on housing association repair and maintenance is expected to decline to around £2.8bn by 2022.
• Under the London Affordable Homes Programme 2016-2021, the Greater London Authority has secured £3.15bn to start building at least 90,000 new affordable homes.

These facts have been extracted from AMA Research's 'Social Housing Construction & Maintenance Market Report - UK 2018-2022' available for purchase now. 

Hotel, leisure and entertainment construction output grew by 33% in 2017 to reach £9.4bn

Dominated by the private sector, the entertainment and leisure sector has experienced more positive construction output conditions than many other sectors over the past 5 years. Despite a dip in 2015, output growth in the sector has remained between 2013 and 2017, and overall indications are that output grew by around 33% in 2017 to reach £9.4bn. Expansion and investment has been largely confined to the budget hotels, health and fitness and more recently the cinema segments, with less buoyant activity in other sectors.

Going forward, there is a good pipeline of leisure sector work forecast, with a mix of theme park, resort, hotel and sports stadia in the pipeline, which should underpin construction growth over the forecast period. In addition, there are also a number of projects currently proposed or under discussion for the refurbishment and redevelopment of a number of sporting venues/stadia, with the larger projects likely to make a significant contribution to entertainment output into the medium-term.

The hotel sector will provide significant impetus for output growth with into the medium-term with the budget hotel sector a key driver of investment activity. The current erosion of the Pound Sterling against other currencies is making the UK an attractive holiday resort, and underpinning investment in hotels and restaurants, whilst the health and fitness sector should also continue to underpin output growth with the budget gym sector continuing to grow. 

However, there are sub-sectors within entertainment that are likely to do less well into the medium-term. The public house estate is facing issues of increased rents and falling turnover, and in addition, the betting and gaming sub-sector has also been affected by the move to online games and virtual casinos.

Overall, sector output is forecast to see good overall growth to 2022, albeit at lower growth rates of between 3% and 5% when output is forecast to be around £10.9bn; however, the diversity of the sector means that growth prospects vary considerably between sub-sectors, with recent growth in the budget and high-end hotel and budget gym and restaurant sectors helping to offset the decline in the pubs and clubs sectors.

Many new construction projects in the hotel and leisure sectors relate to re-fit or refurbishment as hoteliers and leisure facility owners focus investment in their portfolios through refits, re-branding and refurbishment programmes, rather than newbuild, and as such there remain opportunities for refurbishment and re-branding for the larger hotel and leisure operators.

Keith Taylor, Director at AMA Research said:

“There is no doubt that the hotel, leisure and entertainment construction sectors have performed very well in 2016 and 2017 compared to many other sectors. However, the 33% increase indicated by the construction output figures was partly caused by a revision of both historical and current ONS figures, and for 2018 we are likely to see more realistic figures for output growth”  

The ‘Construction in the Hotel, Entertainment and Leisure Sector Report - UK 2018-2022' report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

The Rise of the UK Build-To-Rent Market

The UK’s Private Rented Sector (PRS) is going through a period of rapid change. A recovering UK economy and increasing interest by both UK and overseas large institutional investors are key elements in the recent expansion of the PRS. Rising demand for professionally managed PRS accommodation has led to the emergence of large scale owners aiming to offer a bespoke, professionally run service to a large and growing market. Large institutional investors are now taking a larger share of the landlord market creating bigger schemes and driving supply.

The Build-To-Rent (BTR) sector has grown significantly in the last few years, in particular up to 2016, and the largest volume of BTR is coming through in urban city centres with London leading the way, but there is also significant activity in Birmingham, Manchester and Leeds. 

Growth in the BTR sector has remained strong and there are positive forecasts over the next few years through to 2022 in volume and value terms of around 4-6% each year, reflecting a combination of rising house prices, stagnant wages and tighter mortgage lending, a shifting demographic balance – the growth of the so-called 'Generation Rent', shifting behaviour amongst the younger age groups, population growth, net migration of mainly younger adults, workforce mobility and so on.

In the context of the national shortage of housing stock, the Government has increasingly looked to BTR specifically and the PRS more generally to play a greater role in providing more new build housing and has introduced funding - via the ‘Home Building Fund’ which comprises £2bn of infrastructure funding and £1bn of development finance for housing - to support the sector. The Government is also providing debt guarantees to encourage institutional investment in PRS and sees this route as helping to improve the quality of the sector and vital for enabling new housing units to be built.

As a result, a number of additional measures to make the sector more attractive have been introduced, including a reduction in the requirements to provide affordable housing in planning obligations, improving access to and affordability of land, and a stable regulatory framework in which to operate. That said, the planning system continues to present challenges to the viability and delivery of many PRS schemes.

Housing associations and local authorities have also increasingly been looking to the PRS as a means of alleviating local housing shortages and subsidising reductions in central Government grant funding.

“The PRS industry and the BTR sector have grown significantly in the last couple of years, and this growth looks set to continue in the medium term, with the rental market expected to expand by over 1m households over the next 3-4 years” said Keith Taylor, Director at AMA Research. “The trend towards increased private renting is expected to continue driven primarily by the younger ‘generation rent’ demographic, which is being targeted with appealing lifestyle-branded homes.”

While the PRS is dominated by smaller private landlords – around 75% of private rented dwellings by value are owned by private individuals - many institutional and large corporate investors are showing increasing interest and institutional investors are expected to substantially increase their investment in the BTR sector over the next few years.

The ‘Private Residential Rental Market Report - UK 2018-2022’ report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Construction in the Sports Sector - 5 Key Facts

• Annual construction output within the leisure and entertainment sector is around £6 billion, of which the sports sector accounts for an estimated 25%.
• It is estimated that the UK sports construction market was worth around £1.5 billion in 2017.
• Schools, colleges and higher education institutions for around 30% of total output within the sports construction market.
• Football stadiums and facilities accounted for 38% of UK professional sports facilities construction in the period of 2011-2017.
• The eight national contractors with the largest shares account for just around a third of the market.

These facts have been extracted from AMA Research's 'Construction in the Sports Sector Report - UK 2017-2021 Analysis' available for purchase now. 

Education Construction Market - 5 Key Facts

• Education construction output increased by around 8% in 2016 to reach a value of £11.2bn.
• Education construction output increased by around 8% in 2016 to reach a value of £11.2bn.
• A total of 537 schools across England are expected to be rebuilt or refurbished under the Priority Schools Building Programme by 2021.
• The overall grant distributed by HEFCE for the 2017-18 academic years is around £3.5bn, of which around £350m is capital funding.
• There are around 85,000 Purpose Built Student Accommodation bed-spaces in London.

These facts have been extracted from AMA Research's 'Education Construction Market Report – UK 2017-2021 Analysis' available for purchase now. 

Modest forecasts for construction output amid Brexit uncertainty

Recently revised data indicates that total construction output increased by 8% in 2017 compared with 2016, to reach a total value of £163.5bn. In terms of value, new work accounts for the largest share, with output growth having been particularly strong in the residential new work segment, which saw growth of 14% in the year. RMI output has also been stronger in the residential than in the non-residential sector. Overall RMI output increased by 7% in 2017.

In H1 2018, the construction sector remains uncertain to moderately optimistic. Indications are that new orders remained positive into Q4 2017 and this should lead to some growth in terms of output into 2018 and beyond for certain key sub-sectors, and as a result, the outlook for the UK construction market remains mildly positive into the medium-term, although with lower rates of overall growth than previously forecast.

The outlook for the housing sector remains positive, if modest, with 17% overall growth in residential output currently forecast between 2017 and 2022. The imbalance between demand and supply for new housing will remain one of the key drivers for continued output growth for the residential sector, and the number of new programmes designed to address shortage in housing stocks should motivate output into the medium-term.

However, predicted growth in the newbuild sector is set against lower growth levels for completions, and also takes into account an element of materials inflation – in particular for the finishing of new housing, such as sanitaryware, tiles and electrical wiring products. RMI in the residential sector is currently forecast to remain relatively steady, with low annual growth rates reflecting consumer confidence levels.

The non-residential sector is facing more subdued growth into the medium-term with output currently forecast to reduce to 1-2% 2018-19, followed by annual growth of around 3% to 2022. The issue of business confidence and investment levels and the “wait and see” approach regarding the commitment to future funding and capital commitments are all likely to act as a brake on output levels into the medium-term. 

Infrastructure will remain the largest sub-sector with growth underpinned by HS2 which has the potential to deliver £3-4bn pa of output to 2022. However, the HS2 works also bring into question the issue of capacities both in terms of materials but also workforce which could result in skills shortages for other sub-sectors into the medium-term.

The entertainment & leisure sector output is forecast to see good overall growth to 2022, when output is forecast to be around £10.9bn.  Following growth of around 33% in 2017, annual growth rates are currently forecast to fall back to around 3-5% from 2018 to 2022.

The retail sector is currently forecast to perform less well, due to a combination of structural changes within the sector and also potential reduction in consumer confidence and spending levels, and the public sector is likely to see less investment in capital projects into the medium-term, particularly given the focus on the collapse of Carillion and their extensive involvement in PFI contracts. 

“Overall growth in construction output is forecast to reduce to around 2% for 2017-18, but improving to 3% for 2019-22” said Jane Tarver of AMA Research. “This more modest forecast takes into account the continuing uncertainty surrounding the Brexit process affecting the timing of business investment decisions.”

The ‘Construction and Housing Forecast Bulletin - GB 2018-2022’ is published four times a year by AMA Research. The bulletin provides analysis of the overall construction market in current prices, in terms of new work and RMI activity, also public and private sectors and new orders, housing starts and completions, as well as forecasts to 2022. It is sold on a subscription basis and can be ordered online at www.amaresearch.co.uk.

UK interior refurbishment & fit-out sector increased by 6% in 2017

The interior fit-out and refurbishment market -as defined in AMA Research’s latest report on the sector - has increased by 34% since 2013, in value terms, and rose by 6% within the last year alone. However, annual growth levels are starting to slow, and more constrained growth is forecast, for reasons including the uncertain state of the UK economy, a deferral of major investment decisions, cuts to public sector budgets and a continued scaling back of large construction programmes.

Fit out and interior refurbishment output has increased steadily in recent years, especially within sectors such as commercial offices, education and leisure & entertainment. For a variety of reasons, many private sector clients have chosen to commission interior refurbishment works rather than costlier and potentially more disruptive new build projects. Ongoing shortages of Grade A office space in many parts of the UK have also contributed towards much of the recent market growth.

In the public sector, reductions in capital spending programmes and the trend towards smaller but more suitable estate portfolios has led to increased interest in refurbishment in industries such as education and healthcare. Organisations such as NHS trusts and universities have tended to reassess and refresh their existing assets, rather than taking on more expensive new build projects.

“In many end use sectors, demand for refurbishment services is also being led by changes in the way industries operate, such as a much greater emphasis upon technology-based learning in schools and universities, as well as rising expectations amongst students, which have led to significant improvements in many higher education institution facilities” said Fiona Watts of AMA Research. “Annual levels of growth of around 2-3% are forecast for the next few years.”

Commercial offices constitute the largest market for interior refurbishment and fit-out services, accounting for 27% of value in 2017. The shortage of Grade A office space has contributed to growth in retrofit refurbishment and remodelling of existing space, whilst considerations such as changing patterns of working and energy or sustainability concerns are also affecting ways in which offices are being designed.

Opportunities in the retail sector are expected to decline over the coming years. Store conversions and interior refurbishments remain important to many of the UK’s leading retailers, however many are now rationalising their estates in the face of greater competition from online shopping channels.

Others with a high-street presence such as pubs, restaurants and betting shops also face similar challenges, although overall the leisure and entertainment sector is forecast to grow, driven by clients such as budget hotel and gym/fitness club operators.

Education represents the second largest sector for interior refurbishment in the UK. In the higher education sector, there are significant opportunities for fit-out and refurbishment work going forward, and investment in areas such as student accommodation and learning and recreational facilities continues to grow, as establishments bid to stand out from their rivals to attract students. At the same time, the healthcare sector share is expected to remain unchanged for the next few years, although looking further ahead, the predicted expansion of the care homes sector may assume increasing significance within the healthcare market.

The ‘Interior Refurbishment and Fit-Out Market Report – UK 2018-2022’ report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Facilities Management Outsourcing - Corporate Sector - 5 Key Facts

• In 2017, Facilities Management outsourcing in the central and local government market was estimated to be worth over £4.3bn.
• Social housing accounts for 45% of market value.
• The total running cost of the central government mandated estate in 2015/16 was estimated at over £2.5bn.
• The housing associations’ stock has generally been rising over the last few years, increasing 6% between 2012 and 2016.
• The UK FM market is fragmented in nature, with the leading 5 operators only accounting for an estimated 35% of market value.

These facts have been extracted from AMA Research's 'Facilities Management Outsourcing - Corporate Sector Report – UK 2017-2021 Analysis' available for purchase now. 

UK data centre construction market worth around £1.1bn following two years of growth

The UK construction market for data centres is estimated to be valued at around £1.1bn in 2017, following two years of market growth. Performance has been positive in recent years, with high take up of space in the co-location sector from late 2015 onwards. In 2016 and 2017, the data centre market benefitted from major investment decisions from Amazon Web Services, Microsoft, IBM and Google, and there are several other major data centres being developed across the UK, which should provide further impetus to the market in the next year or two.

The commercial, or co-location, sector has experienced the greatest level of growth, boosted by major data investments from global players in the last two years. Co-location providers account for a significant proportion of new build data centre projects and data centres in this sector are built to a high specification. While growth in the commercial sector has outpaced the private data centre sector, most of the existing data centre estate still belongs to private businesses.

In contrast, expenditure in the public sector has fallen slightly as the Government’s cloud-first policy has led to increased outsourcing and use of wholesale and co-location providers to reduce its IT expenditure. Output in the private sector has remained static since 2015, as businesses increasingly seek to adopt cloud-based solutions and reduce reliance on in-house data centres, recognising the cost, efficiency and security benefits associated with using commercial data centre provision.

A key driver for data centre construction has been the rapid growth in demand for data storage. Consumers’ demand for digital content continues to grow, particularly due to increasing levels of online video streaming, downloading of other media such as music and reliance on social networks. In addition, ongoing rapid growth in mobile data usage is fuelling demand. Greater levels of online shopping, banking, information services etc, have also led to rapidly increasing amounts of data being processed over networks.

By far the largest geographical UK data centre cluster remains in the London and M25 area, though there is growth in other areas with large campus style data centres established in Wiltshire, Leicestershire, South Wales and Cambridgeshire. Manchester and Scotland are also becoming more established data centre markets. This trend of migration from London to other regions, offers cheaper alternatives for data centre locations without compromising the quality of service offered.

“Indications are that construction output within the data centre sector will rise consistently from 2018 onwards, driven by steady overall construction output, but primarily by underlying factors driving greater IT and internet usage” said Hayley Thornley, Market Research Manager at AMA Research. “The commercial sector is expected to drive construction growth, while the trend towards outsourcing data centre services from both the public sector and private businesses is likely to lead to relatively modest growth in these sectors.”

Overall, the data centre construction market is forecast to grow by around 3-4% per year through to 2022.

An increasing focus on cloud-based delivery of software and platforms will continue the shift from private corporate servers to cloud-based solutions, and this, coupled with increased use of blade servers, much more significant growth of virtualisation of servers, should support the development of larger, ‘high density’ data centres. The adoption of modular design data centres is also likely to continue in coming years, with a move towards more automated, software-defined data centres likely to improve productivity and reduce costs.

The ‘Data Centre Construction Market Report – UK 2018-2022’ report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Strong pipeline in the UK higher education and student accommodation construction markets

Total construction output in the higher education (HE) sector was estimated to be worth around £3.9bn in 2017, and this is forecast to rise as the market for university construction work steadily increases. Despite the increase in tuition fees, student numbers continue to expand in the higher education sector placing great pressure upon university teaching, research and residential infrastructure.

Investment continues to increase among UK universities as competition to attract students intensifies, and there is a buoyant pipeline of ongoing new work at a number of universities as part of major long-term development programmes. While these projects are at varying stages of development they indicate an upward trend in construction work in the HE sector and are expected to translate into a rise in output over the medium term. As such, the HE sector remains an important driver of construction activity and output.

The expansion in the number of students has also led to increased pressure on university residential accommodation. Only around 20% of students are currently catered for in university run halls and around one third of this accommodation was built before 1979 and in need of significant upgrading.

The shortfall in university owned accommodation continues to be met by commercial providers and the purpose-built student accommodation (PBSA). The PBSA sector has seen significant growth in recent years and commercially run student accommodation now accounts for over 50% of the market by value.

The regional student accommodation market has become very mature in places such as Aberdeen, Newcastle, Sheffield, Liverpool and Glasgow, where large numbers of beds have been added in recent years and where the pipeline of developments still remains strong. In these very mature market areas, any new development has to compete on price and quality.

Development prospects are stronger in prime markets such as Birmingham, Exeter, Oxford, Bristol, Manchester, Leeds and particularly Coventry, where strong demand together with rising student numbers alongside limited supply, make these cities attractive for new student development.

London is the most undersupplied area in the student property market and recent changes to the planning regime have made such development more difficult over recent years. The provision of university-managed accommodation has not kept pace with the growth in student numbers and London remains a key investment region for student accommodation driven by growing demand by overseas and postgraduate students.

Going forward, higher education sector workloads are expected to be boosted by key long-term capital building programmes announced by universities as they seek to invest in research, teaching and accommodation facilities, compete to attract the highest paying students and prepare for the challenges that lie ahead as a result of Brexit.

“The market for purpose built student accommodation (PBSA) has emerged as a key investment sector over the past decade, with a growing interest from investors, developers and private operators” said Keith Taylor, Director of AMA Research.

“With the main PBSA operators and developers indicating a significant forward pipeline of bed-spaces, the outlook for contractors in the sector remains buoyant, with around £5.5bn worth of contracts in the student accommodation sector estimated for the construction industry between 2018 and 2022.”

However, rates of completion are expected to moderate after 2018, as the market matures in many areas and concern continues over the impact of Brexit on overseas student numbers. Rising build and site costs are also likely to continue to put pressure on developer margins and the trend for more affordable accommodation is likely to shape the forward PBSA pipeline.

The ‘Construction in the Higher Education and Student Accommodation Sector - UK 2018-2022’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

UK social housing market worth an estimated £11.4bn in 2017

Housing Associations account for around 60% of social housing stock in 2017-18 and also form the largest not-for-profit group in the UK, working closely with both private and public organisations. Around 76% of market stock owned or managed by housing associations is general needs housing, which is primarily social rental accommodation. In terms of value, the social housing construction market was estimated to be worth around £11.4bn in 2017, including both newbuild and RMI activity.

The social housing sector is diverse with over 1,700 registered providers in the UK. Most of these are small players, but the leading associations hold larger portfolios and much of the sector’s development capacity. A series of significant mergers have taken place over the past couple of years to achieve economies of scale and greater development influence. The top 30 housing association groups now account for around 59% of the social housing market, compared with 41% in 2015.

The sector is currently experiencing funding issues influenced by increased financial constraints on local authorities and social rent cuts of 1% a year from 2016-17, something which has led to reduced discretionary spending on maintenance and improvements. The Affordable Rent model has also had a considerable impact on income streams.

As a result of successive programmes which place an emphasis on affordable, rather than social rent, the number of new homes for social rent has continued to decline as housing associations build fewer homes and acquire fewer properties. Housing association starts in 2016-17 were down by around 6.3% on the previous year for the UK as a whole, while completions were also down by around 3%. The majority of social housing completions were for affordable rent, while the main area of decline was in social rent completions.

The Government’s primary focus for the housing sector at present is home ownership and getting people on the housing ladder, by subsidising first-time buyers with policies such as ‘right to buy’, ‘help to buy’ and ‘rent to own’. However, recent Government announcements in both England and Scotland have seen ambitious targets to tackle the housing deficit, including a recent announcement of a further £2bn for affordable housing in October 2017.

The Government is also making available £4.7bn of capital grant through the Shared Ownership and Affordable Homes Programme (SOAHP), and in London, £3.15bn has been secured under the London Affordable Homes Programme 2016-2021 to start building at least 90,000 new affordable homes up to 2021, of which around 50% will be affordable. In addition, the Scottish Government plans to deliver at least 50,000 affordable homes by March 2021, 70% of which will be for social rent.

Despite these ambitious targets, there is still widespread doubt across the sector that these targets will be met, with a lack of suitable sites and continuing delays to the planning process also hampering delivery. There is now a much-reduced role for the social housing sector in newbuild housing. Funding for affordable housing has fallen in recent years and housing providers are now expected to build homes for sale and rent at full market prices, and using the profits to provide a smaller portfolio of social homes.

Expenditure on planned maintenance work in order to maintain homes in a good condition has remained static over the past few years. However, expenditure on major repairs has declined slightly in 2016/17, as the Decent Homes Programme moved into its final stages. Growth in expenditure on housing association RMI is expected to slow from 2017 onwards. Other issues influencing repair and maintenance include tower block safety and the Building Safety Programme.

“Prospects for the sector in the short-medium term remain challenging. The limited grant funding under the Affordable Housing Programme, driven by the emphasis on the Affordable Rent investment model, has prompted Social Housing providers to seek finance and support from alternative sources, with some forming partnerships with private sector providers” said Hayley Thornley, Research Manager at AMA Research. “Going forward, social housing completions are expected to remain relatively flat, rising by between 1-3% to 2021-22.”

The ‘Social Housing Construction and Maintenance Market Report – UK 2018-2022’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Commercial Office Construction Market - 5 Key Facts

• Output has been buoyant, rising to reach £11.9bn in 2016. 
• Office construction represents 18% of total non-residential construction output.
• The private sector accounted for almost 94% of output in 2016.
• AMA estimates that pre-fabricated volumetric buildings for the commercial office sector is estimated at around £35-40m, or around 4-5% of the total prefabricated buildings market.
• The Central London tall buildings pipeline continues to grow, with over 437 tall buildings in the development pipeline.   

These facts have been extracted from AMA Research's 'Commercial Office Construction Market Report - UK 2017-2021 Analysis' available for purchase now. 

Output expected to decline in the UK Education Construction sector

Construction output in the education sector has seen 4 years of consistent growth, and reached a peak in 2016 at around £11.2bn, driven by investment in both the school and higher education estate. From 2017 however, forecasts indicate that output will decline slightly over the next 3 years before returning to growth in 2020 and 2021. In the schools and colleges sector, demand continues to be strong and the pupil population is expanding rapidly. The need for additional school places is expected to exceed 420,000 by 2021.

While capital budgets remain constrained, the need for investment is recognised by the current Government, which announced £23bn of capital investment in the 2015 Spending Review to cover the opening of 500 Free Schools, and provision of over 600,000 additional school places. In the 2017 Spring Budget, it also pledged an additional £320m to help fund up to 140 new free schools as part of plans to increase investment in local infrastructure and relieve pressure on local authorities for increased school places.

Building programmes in England’s education sector are being led by the Priority School Building Programme (PSBP), the first phase of which is currently underway and will help rebuild 260 schools. For the second phase, the Government has allocated a further £2bn.

In Scotland, the Schools for the Future Programme, worth £1.8bn, is expected to deliver around 112 schools up to 2019, while in Wales, the main investment programme for the education sector is the 21st Century Schools Building Programme, which aims to upgrade and extend the entire stock of schools in Wales.

University construction work remains a much smaller market than the schools & colleges sector. Total construction output in the HE sector, including both private and public work, is forecast to rise to around £4bn by 2021, as UK universities continue to increase investment in new buildings. Refurbishment work is a strong sector for universities due to a backlog of repairs and upgrades to often large and ageing estates and also due to the pressures on institutions to cut the operating cost of their buildings.

Rising student numbers have placed additional strain on university infrastructure in recent years, including teaching and residential accommodation. However, in the most recent academic year, student numbers declined driven by the uncertainty for EU students surrounding Brexit and higher tuition fees. Going forward, the impact of potential immigration targets on EU student numbers coming to the UK and fee levels remain key issues of concern.

In terms of funding, English universities have seen a 4% decline overall between 2016-17 and 2017-18, with capital funding having declined by over 25% over the period. The environment for university funding has changed dramatically, and as a result, universities are turning to capital markets to fund infrastructure investments.

Education capital spending is set to fluctuate until 2021, having declined by around 12% between 2016-17 and 2017-18, before rising to £6.1bn in 2018-19, then falling again in 2019-20. Restricted budgets and limitations placed on the size of classrooms and overall space in new schools is expected to constrain value growth for construction output into the medium-term. Rising cost pressures for contractors have also delayed the timing for the second phase of the PSBP.

Going forward, higher education sector workloads are expected to be boosted by key long-term capital building programmes as universities seek to invest in research, to address past under-investment and provide additional space for teaching, research and accommodation facilities and to attract higher fee-paying overseas students. 

The ‘EducationConstruction Market Report – UK 2017-2021 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Tough times for support services industry as Carillion collapses

 Carillion's failure is significant within both the construction and the facilities management (FM) industries and will have implications for clients, competitors and suppliers across the spectrum of the construction industry.

The company employed approximately 43,000 people, and had grown via the acquisition of companies such as Mowlem, Alfred McAlpine and John Laing Integrated Services. The company was made up of the following business segments: Support Services, which includes facilities management; PPP Projects, which covers sectors such as healthcare, defence, education and transport; Construction Services excluding the Middle East; and Middle East Construction Services.

The facilities management environment in particular has been a key sector for Carillion as they supplied FM services to more than 150,000 properties across the UK, whilst the Support Services division operated in sectors such as defence, local government, corporate, healthcare and home affairs/justice, providing both hard and soft FM services. Elsewhere, the company jointly owned the CarillionAmey joint venture, which provided maintenance and housing services for personnel from the armed forces and their families.

Some challenges that have faced the FM industry in recent years have included:

• The Brexit effect - the current uncertainty caused by the Brexit vote has hampered economic growth, and one effect within the outsourcing industry has been a slowdown in the overall contract pipeline, with companies less willing to invest until the economic and political situation becomes clearer. There is also a worry that the industry will see labour shortages if immigration is restricted.

• Budget cuts - in the public sector, the market is strongly influenced by the Government's attempts to rein in spending levels, to reduce the public sector deficit. Budget cuts continue to impact upon many government departments, including leading FM end-user sectors such as healthcare and education. Across both central and local Government, budgetary constraints mean that the current emphasis is upon public sector organisations 'living within their means.' Many public sector organisations are therefore more reluctant to commit to long term outsourcing contracts, with the result that shorter contracts (e.g. three years or less) are becoming more common and renegotiation of longer term contracts is also evident.

• Declining contract values - the need to minimise operational costs has seen many organisations reducing both office space and their workforces, therefore having a negative influence on the FM market, as contract values are cut.

• Higher labour costs - the introduction of the National Living Wage in such a labour-intensive market (FM and support services), has led to increased pressure on contract prices and on some existing contract margins where the costs could not be recovered.

• Price competition - increasing competition between suppliers in the market has constrained both market values and growth and had an adverse effect upon margins, and in some instances led FM suppliers to underbid and over-commit to delivery in order to secure contracts successfully.

The growth of FM provision has created some major companies that are, to some extent, victims of their own success. They are managing very large numbers of contracts across many countries, something which can lead to operational and management problems. These developments have led to some companies adopting more stringent procedures for monitoring contracts, to ensure performance levels are adhered to and costs kept down.

Within the last couple of financial years, turnover for many of the leading FM operators has decreased, something which can mainly be attributed to the factors mentioned previously, i.e. the uncertain state of the economy, the continued rationalisation of the government estate and the market's maturity. The market appears to be approaching something of a crossroads, with FM services now also incorporating data management in greater quantities - companies able to embrace these new concepts and technologies will be the most likely to prosper.

There is little doubt the UK FM market is facing difficult times, not just in terms of profitability, but also the fall-out in terms of sentiment from the Carillion failure and whether this leads to a change of direction in many public and private sectors, with regards to the attraction of outsourcing.

For a more detailed review of the facilities management and outsourced services markets, visit this link, which provides details of market reviews relevant to this industry.

Smart Technology an important growth driver in the UK Shower Market

In 2017, the value of the shower equipment market is estimated to have seen a moderate increase of around 2%, according to a new report by AMA Research. This follows a similarly modest increase of 3% in 2016. The level of penetration for showers has climbed significantly since the late 1990’s to reach around 90% in 2016, with at least one shower installation in the majority of UK households. Continued steady growth of around 2-4% per year is currently forecast to 2021.

Following two years of good growth due to increasing levels of new house building boosting demand and relatively buoyant consumer confidence supporting RMI activity, the shower equipment market was more subdued in 2016 and 2017, with 5% growth achieved over the two years. Uncertainty surrounding the Brexit process has impacted on business and consumer confidence, which in turn could impact negatively on new construction starts and RMI activity in the next 2-3 years in some end-use sectors.

Shower controls account for the greatest proportion of the shower equipment market with 46% share by value in 2016. Enclosures, screens and trays account for somewhat less than the shower controls sector, while the maturing shower market and higher level of shower usage, has led to some share growth in replacement products, such as shower accessories.

In recent years, product development and improvement in the shower equipment market has focused on quality and design with a trend towards higher value products and contemporary styles. Demand for digital showers have also shown good growth as the use of ‘smart’ technology in UK homes becomes more prevalent, with plumbing installers also increasingly familiar with digital showers and the installation benefits they can offer.

As the shower market matures there are greater levels of replacement purchases leading to product upgrade and added value opportunities. An increasing number of shower products are now designed specifically for retrofit purposes, such as electric showers with multiple cable/water entry points and mixer showers with standard pipe centres.

Demand for ‘inclusive’ showering solutions is growing, as increasing numbers of elderly and disabled people are now living at home, creating demand for accessible solutions that make the bathroom easier to use and more functional. For example, walk-in enclosures or wetroom areas, level access trays, thermostatic shower controls with easy-to-use controls, shower seats, grab rails etc.    

With environmental issues increasingly in focus, water saving is also becoming an important consideration. With over one third of UK homes on a water meter, the demand for water efficient shower controls is increasing. The addition of the Water Label on shower packaging has also made consumer product comparison of the water use between similar products easier and more transparent.

Hayley Thornley, Research Manager at AMA Research said: “Going forward the market is expected to increase by around 13% between 2018-2021. New housebuilding volumes are set to continue increasing despite the uncertainty currently surrounding the UK's exit from the EU, and prospects remain positive in this sector, supporting demand for showers installed in new build homes. In the commercial sector demand for showering equipment is likely to emulate from private new build and RMI activity in the hotels sector, care homes and health & fitness clubs/gyms.”

The shower equipment market will continue to fragment and the number of own-label products, often sold via the internet, is likely to increase. Online retailers are becoming significantly more important as consumers increasingly use the internet to source the best deals, but manufacturers are also selling spare parts and accessories direct to the consumer online.

Competition from non-UK suppliers is also set to grow, and pricing pressures are likely to remain intense due to the high level of imported product and the growing number of competitive distribution channels such as the internet, home improvement multiples and other major retailers.

The ‘Shower Market Report – UK 2017-2021 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Consolidation to continue in the UK construction contracting industry

The construction contracting industry has experienced good growth since 2013, as a result of relatively buoyant construction activity across several end-use sectors. In particular, the infrastructure, commercial office, education and entertainment sectors have performed well in recent years, with infrastructure projects accounting for over 40% of the value of contracts awarded in 2016. More recently, however, the number and value of contract awards have been lower than in 2015, indicating a slowdown.

Despite the growth in recent years, the contracting industry is facing a number of challenges, including significant labour shortages, in particular with regards to skilled tradesmen, across all areas of the country. In addition, the impact of Brexit on the construction industry is expected to be most significant on the long-term supply of capital and labour into the UK, and potential changes to immigration policy could widen the supply gap in the labour market.

The leading UK contractors in terms of turnover are Balfour Beatty, Kier, Skanska, Multiplex, Willmott Dixon, Carillion and Galliford Try, Morgan Sindall and Laing O’Rourke. Together, the top 30 contracting firms accounted for over a third of the total work awarded to contractors in 2016/17.

Contractor margins remain under significant pressure in 2017 as a result of rising material costs and wage inflation, and this has led to some restructuring in the industry. In addition, the fall in the value of Sterling has meant that UK firms have become more attractive to overseas firms, especially where there is a long-term pipeline of major infrastructure work, and in recent years there has been significant consolidation activity in the sector.

There is a growing political and economic uncertainty concerning the EU withdrawal and contracting firms currently remain cautious about future workloads. With competition for construction work now stronger than ever and large-scale construction contracts now few and far between, main contractors have been considering lower value contracts in a bid to maintain workloads. This has led to intense competition also with smaller, regional companies competing for small and medium sized contracts.

Hayley Thornley, Research Manager at AMA Research, commented:

“Going forward, growth in the contacting industry is likely to be underpinned by opportunities in large-scale infrastructure, public sector and private residential work, as new private commercial sectors suffer a slight slowdown. Major construction contracts are increasing in size and complexity, and by 2021 the construction industry is expected to have undergone significant consolidation - driven by the larger UK players as well as interest from overseas firms - resulting in several larger multidisciplinary players with the necessary scale to handle larger and more complex projects“.

Many end use sectors are expected to support growth with positive outlook in sectors such as infrastructure, entertainment & leisure and the health sector. However, this will be partially offset by the more subdued performance from sectors such as retail, which may suffer from reduced consumer confidence levels, along with lower output in commercial offices and education. The market is also expected to be impacted by the increasing economic and political uncertainty surrounding Brexit.

The ‘Construction Contractors Market Report – Focus on Sector Capability and Strategy - UK 2017-2021 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience in the construction and home improvement markets.  The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.