Recovery in Sight for Panellised Modular Building Systems

The UK market for panellised modular building systems is estimated to be worth some £440 million in 2013, according to a new report by AMA Research. Forecasts for growth are relatively optimistic, but are dependent on recovery in the housebuilding and other key construction markets.

The market has remained subdued following a period of significant decline between 2008 and 2010, primarily due to the downturn in housebuilding activity. However, from 2013 onwards the recovery in the economy coupled with temporary shortages of aircrete blocks and bricks, have fed through to increased demand for MMC. However, from 2015 the market is likely to experience more modest growth rates as this situation changes.

The timber frame sector is by far the largest under review, with trends here largely underpinning those at the overall level. By value, the timber frame market was worth over £300m, with light steel framing, concrete and SIPs accounting collectively for around £110m. Key end use sectors for panellised modular building systems are houses, apartment blocks, schools, budget hotels, smaller healthcare and care facilities, and purpose built student accommodation. However, demand across the public sector has been impacted by cuts at central departmental, agency and local authority levels.

The industry has undergone some restructuring in recent years, with the exit of a number of major suppliers, particularly in the timber frame sector. Market supply is fairly fragmented, with no suppliers having dominant market shares - there are only three relatively large manufacturers of timber frame system that regularly report annual sales over £20m.

“We could see sustained recovery in the demand for panellised modular systems in the short to medium term, provided that key construction sectors continue to recover” said Andrew Hartley, Director of AMA Research. “The government’s pledge to support the development of up to 30,000 affordable homes in England and the general upturn in the housing market should mean that housebuilding will provide a key sector for growth.”

Another potential key driver is the government’s Modular Building Systems Framework, which should encourage the increasing specification of steel frame and timber frame modular building systems on public sector projects, and factors that should help overcome barriers to specification include the mandatory implementation of BIM across the public sector.

Taking these factors into account, forecasts for the short to medium term are for steady growth within the range of 3-5% per annum until 2018.

The ‘Panellised Modular Building Systems Market Report - 2014-2018 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services 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.

Electrical Contracting Market Returns to Growth

The electrical contractors market was estimated to be valued at around £18.2bn in 2013, having seen moderate levels of growth since 2011, according to a report published last month by AMA Research. Growth rates are forecast to improve from 2014 onwards, although the market will remain competitive with profit margins under continued pressure.

While electrical contracting is thought to have been less affected than some other areas within the construction industry during the recession, the electrical contractor market declined in 2009/10. In 2011, increasing raw material prices provided a boost to the market in terms of value. However, this was offset to a great extent by weak demand in the private sector and the government’s spending cuts taking effect, and the growth rate seen in 2011 could not be sustained, leading to a flat market performance in 2012.

Current estimates are more positive, and point to a return to growth from 2013 onwards. Business confidence has been higher during the year and there have been some positive signs that the economy could finally be recovering from the downturn.

Competition remains fierce among contractors, with reports of businesses continuing to submit tenders at, or below, cost price in order to secure work or retain clients. Profit margins, which were already under pressure, have declined further. Consolidation activity amongst suppliers continues to be high within the market. This has led to a number of major players increasing in size over the past few years. The growth in strategic acquisitions is also in response to the growing focus on integrated services within the sector, with contractors widening the range of services offered.

A key area of growth in recent years has been installations aimed at improving energy efficiency and reducing carbon emissions, driven by increasingly stringent legislation and regulations around this, but also given impetus by the long-term cost savings that can be made by installing such systems, driven by increasing fuel costs.

Future prospects for the sector are moderately positive, with the electrical contracting market expected to show growth of around 3% per annum over the next few years. However, this depends largely on the performance of the non-domestic and domestic construction sectors. The housing sector is one of the key sectors likely to underpin growth within the electrical contracting market over the next few years, as demand for new housing is constantly increasing.

Keith Taylor, Director of AMA Research, said “Growth in the future is also likely to be motivated by legislation around carbon reduction, and renewable energy in particular. Solar panel installation currently represents a fast growing sub-sector of the electrical contracting market. A shift to LED lighting should have an impact on the market and data centres also remain a potential source of growth.”

Forecasts indicate that the market may reach £20.6bn by the end of 2018, providing the economic climate continues to improve.

The ‘Electrical Contractors Market Report - 2014-2018 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services 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.

Bouyant Market for Data Centre Construction in the UK

The market for data centre construction is estimated to be valued at around £1.1bn in 2013, following two years of exceptionally high level growth. However, while take-up rates continue to increase, data centre construction output is likely to fall from 2014 onwards as demand is absorbed by the relatively high levels of existing vacant space.

Market performance has otherwise been variable, with falls during 2009 and 2010 as a result of the economic downturn affecting a number of key sectors for data centres, such as financial services and retail. Subsequently there was a return to growth in 2011, and data centre construction activity was at a very high level throughout 2012 and into 2013.

This was due to the growing interest in cloud computing in combination with improving business confidence, which led to a release of projects previously on hold. Energy efficiency is another key driver of market growth. The effects of improving energy efficiency in data centres can be seen immediately, bringing the additional benefit of substantial savings on operational costs, of which power accounts for a large share. This has driven demand for modular solutions, from rack-based solutions to complete data centre pods and containerised solutions.

One key trend that may affect the market negatively in the longer term is that of data centre consolidation. The government, as well as a number of private businesses, have announced plans to consolidate their data centre estates and move operations to fewer, larger and more efficient data centres. The full impact of this is yet to be seen in the market.

In terms of contractors, the data centre construction market is extremely fragmented. While most large M&E contracting businesses are key players, companies involved in data centre construction range from major building contracting groups and commercial developers, to data centre specialists and operators, modular building manufacturers and IT equipment suppliers. It is likely that further consolidation will take place among operators, specialists and construction/engineering firms in the near future, as the market remains characterised by a large number of new entrants and small market shares, even among the established leading players.

Demand is expected to continue to grow, particularly from technology, media and content providers, with the financial sector also expected to pick up following some definitive signs of economic recovery in early 2014. However, much of this demand is likely to be absorbed by existing vacant data centre space as more businesses opt for the co-location model. The impact of the government’s data centre consolidation project is likely to lead to a reduction in the value of RMI and upgrade spend in the sector from 2015 onwards.

It is estimated that between 2014 and 2016 the market will continue to decline in value terms, however, by 2017 it is expected that the amount of vacant space will have reduced and build levels will have started to rise again. The market is forecast to once again exceed £1bn by the end of 2018.

Keith Taylor, Director of AMA Research, said: “It appears that data centre construction is emerging as a significant sector in its own right, and one key trend seen over the past 2-3 years is that of integrated service offerings. Commercial operators and data centre specialists now offer a wider range of construction services and product/equipment suppliers are targeting whole ranges specifically at the data centre sector. These often include software solutions for monitoring and management as well as design & build services.”

The ‘Data Centre Construction Market Report - 2014-2018 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services 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 Interior Refurbishment and Fit-Out market worth over £7bn

The interior refurbishment and fit-out market in the UK was worth an estimated £7.1bn in 2013, according to a new report published by AMA Research. Having endured a period of significant decline in value terms since 2009, it now seems as though the market is on the road to recovery, with growth in 2012/13 estimated at 2-3% per annum in value terms, and forecasts for 2014/15 more optimistic as demand gains momentum.

Factors stimulating the market include an increasing focus on major refurbishment and fit-out projects in the commercial sector – particularly in London - as newbuild activity remains constrained as a result of continued caution among developers in many parts of the UK.

The retail sector represents a major end use sector, accounting for around 20% share of the market value, whilst commercial offices represent the largest sector overall. During 2013 a more sustained recovery was seen in the commercial office market, with take-up and investment returning to levels not seen since the start of the economic downturn, particularly in London but also in some regional centres.

Though many retailers in the retail sector have scaled back their development programmes, more stable market conditions are encouraging the continuation of refurbishment and expansion plans in some sectors, such as the grocery sector where there is a switch to more convenience stores, providing impetus for market growth.

“The outlook for the interior refurbishment and fit-out market in the medium term is positive, with a number of major developments expected to come through in the office l sector and an increased focus on refurbishment work across all sectors” said Andrew Hartley, Director of AMA Research. “Re-branding and upgrading programmes announced by the budget hotels, value gym, cinema and grocery retail sectors will also create continued opportunities for fit-out and refurbishment contractors.”

The report estimates that the market will see annual growth rates of around 4-5% over the next 3-4 years, to reach a value of over £8.5bn in 2018.

The ‘Interior Refurbishment and Fit-Out Market - 2014-2018 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services 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.

Construction Output Forecast to Grow by 30% Over the Next 5 Years

Total construction output in Great Britain will increase by 30% between 2013 and 2018 according to new forecasts published in the latest edition of the quarterly Construction and Housing Forecast Bulletin, issued by AMA Research. Construction output is forecast to grow by around 6% in 2014 to around £129bn, underpinned by strong growth in the residential sector, with more moderate increases expected in the non-residential sector.

Throughout 2013 there has been evidence of genuine recovery within both construction sub-sectors, with overall growth particularly strong during Q2 and Q3. While the non-residential sector experienced marginal decline in Q3-Q4, the residential sector saw growth of 4%.

The outlook for the residential sector in the medium term remains positive with healthy rates of annual growth currently forecast until 2018. Residential new work output is forecast to increase by 36% between 2013 and 2015, stimulated by the recent extension of buying assistance schemes such as Help to Buy within the private sector and schemes to encourage investment in the rental sector such as Build to Rent. Housing starts and completions are forecast to show strong growth in the short term as consumer confidence and mortgage lending rates improve, with completions currently forecast to reach 200,000 by 2017.

Forecasts for the non-residential construction sector are also positive, with output expected to see annual growth rates of 4-5% in the medium term to reach a value of around £65bn in 2018. Infrastructure output growth should continue to be underpinned by large scale transport and electricity projects in the medium term, while output within the office and retail sectors are forecast to see more moderate growth rates. Output within the industrial sector is expected to remain volatile.  
    

“Finally there are some genuine indications of recovery within the construction market. The residential sector in particular is experiencing strong growth at the moment, driven by increased mortgage lending rates and an upward trend in new house prices.” said Andrew Hartley, Director of AMA Research.

AMA Research estimates that construction output will increase at a rate of 5-6% per annum in the medium term, with output expected to represent a value of £158bn by 2018.

The ‘Construction and Housing Forecast Bulletin – GB 2014-2018 Analysis’ is issued four times per year by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. Issue 26 (Q2 2014) is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Self Build Housing volumes forecast to rise over the next 5 years

In a new report published by AMA Research, self-build volumes have been forecast to rise over the next few years in response to measures recently announced by the government. How significant the increase will be is dependent on a number of factors, and the report offers three different scenarios for market growth.  

House prices and housebuilding supply are undoubtedly at - or very near - the top of the political agenda in mid-2014. House prices continue to rise by an average of around 10% across the country, though this is skewed by reported rises of around 17% in London.

Self Build and New Housing Completions UK 2010-2015

There is much political and media debate that the Government’s Help to Buy scheme is fuelling this rise, though this is generally overstated as the majority of the scheme’s funding has actually been focused on the North and Midlands where average rises are currently much lower.

At the same time, the UK has experienced a major decline in housebuilding – collapsing in 2008 and then experiencing only slow recovery since, with completion levels relatively flat in 2013 - though the volume of starts is steadily increasing. Within this scenario, the self build market has also experienced some decline since the peak of 2007, but not to the same extent as the overall market.

There are various estimates of the market for ‘self build’ in the UK, but AMA estimate the figure at around 10-11,000 dwellings in 2013, which typically accounts for around 7-8% of total housebuilding output – or around 10% of private sector output. This figure is way below the average for most ‘advanced’ countries and reflects the serious constraints on output which are well documented- and include the availability of finance, together with difficulties in obtaining suitable land and planning permission.

In general terms – and allowing for the variations within the economic/housing cycle - the underlying trend in self build output has been relatively flat, with no sign of any real significant underlying growth. However, there is no doubt that demand for self build is much higher than supply and the sector offers a great opportunity to help meet the targets to increase overall supply if the constraints were lifted.

While, volumes have seen a slight fall in volume terms in recent years, the self build market has continued to grow in value terms, reflecting increases in key component cost elements and is now estimated to be worth over £3bn. Self build tends to be a key market for higher value and often more innovative products, particularly in terms of higher standards of insulation, use of timber frame, adoption of renewable technologies and often high quality fittings, such as kitchens and bathrooms.

Commenting on the future prospects of the sector, Andrew Hartley, Director of AMA Research, said: “Over the last year, the Government has announced a series of measures to improve land availability, planning processes and financial support for the self build sector, in a bid to double the size of the market by the end of the decade. Increasing output to around 20,000 dwellings per annum may seem a realistic target, but this depends on overcoming well-entrenched problems for the sector, which will require significant commitment and action on behalf of central and local government.”

Given this background, it is unclear how the self build market will emerge both under the current government and indeed, under a new government post-2015. There is clearly an unmet demand for self build and the current crisis in the housing market would suggest that significant volume growth in the general housing market could be met by the self build sector, should all the necessary requirements be in place.

The ‘Self Build Housing Market - 2014-2018 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services 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.