In today’s news, following a challenging year for the building industry in 2023, Pablo Cristi Worm is optimistic about the new year. As for the future of the economy, will 2024 offer stability or further uncertainty for the building industry in the UK? On the other hand, the December Construction Index from Glenigan showed a 25% annual decrease in the number of project starts. In addition, CIP will move on with the development of a 1GWh BESS in Scotland. Furthermore, Laing O’Rourke has disclosed that the group’s records for the previous year revealed a deficit of £288 million before taxes.
Economic Outlook: Will 2024 Offer UK Building Stability or Uncertainty?
After a rough 2023 for construction, Pablo Cristi Worm is optimistic for the new year.
Construction and the economy struggled in 2023.
Along with rising inflation and a 15-year high in borrowing rates, the second quarter saw the most construction insolvencies ever.
Construction was incredibly durable. It prevented a UK GDP contraction because construction was the only economic sector still growing, although by 0.1%, by Q3 of this year.
This weak growth was partly due to investment cooling due to economic uncertainty. The main construction sector, housing, was affected by rising mortgage rates, household financial difficulties, and the termination of Help to Buy.
An anticipation mid-year that the bank rate could reach 6.1% by 2023 lowered investor confidence in the construction business, resulting in a 7.7% drop in new orders between Q1 and Q2. Q3 confidence recovered, limiting the loss to 4.1% for the first three quarters of 2023.
It’s not all horrible.
Since July, building production prices have fallen as inflationary pressure has decreased. By September, they were 1.9% higher than January 2023. As the year winds down, the industry is enjoying cost relief from decreased construction material prices, transportation expenses, and natural gas import prices.
These patterns meant September construction output volume was 2% higher than January. Repair and maintenance (R&M) initiatives have fuelled growth in all industries.
Construction output prices fell after peaking in July.
Notably, non-housing R&M rose 4.8% from January to September 2023. R&M has been fostered by government retrofit programs and the sector’s focus on sustainability and energy efficiency.
Look forward to 2024 with optimism.
The bank rate is projected to peak in October as inflation fell quicker than expected. Construction sentiment is also rising. Royal Institute of Chartered Surveyors UK Construction Monitor predicts a favorable workload for the next year, and housebuilders will be encouraged by inflation-driven mortgage rate reductions.
Private commercial and office fit-outs are still in demand as firms update and upgrade their footprints post-pandemic, while infrastructure investment is boosted by the new asset management plan-period in the water sector (AMP8, the eighth asset management period regulated by Ofwat) and the need to invest in renewable energy.
A cautious optimism
Despite this optimism, the construction industry must be aware of future headwinds and long-term concerns. Turner & Townsend data from across the supply chain shows that contractors are challenged by investment in new projects, high construction costs, and skilled labor shortages, even as pressures ease.
In a turbulent market, caution is wise. The two major political parties disagree on sustainability, planning, infrastructure, and housebuilding, adding to the uncertainty of 2024’s general election. Insolvency rates remain high. Skills shortages remain dangerous. Labor shortages may keep construction costs high despite lowering inflation.
To make the best New Year’s decisions, clients must get closer to suppliers to grasp business-to-business difficulties. More data and digital tools across projects will help analyze trends, spot issues early, and optimize investment. 2024 calls for vigilance and cautious optimism.
According to Glenigan’s December Construction Index, Project Starts Fell 25% Annually.
Glenigan’s December Construction Index shows project starts down 25% from last year in the UK. The built environment faced challenges in residential and non-residential sectors.
Glenigan’s December Construction Index shows a year-long fall in new project starts.
Site work started 12% less in the last three months than in 2022.
Private investor confidence has plummeted due to the economic downturn, reducing construction activity across sectors.
Compared to 2022, project starts fell 39%.
Glenigan’s December Construction Index showed residential starts fell 3% from the previous three months, while private housing remained resilient.
However, non-residential performance was poor, with project starts down 24% from the previous three months and 39% from the previous year. Retail was the only sector to rise 5% in the past quarter.
Regional performance differed in the UK.
Regional performance varied greatly during the Index.
Project starts rose 18% in Yorkshire & the Humber, while other regions fell.
London and the South East had 3% and 8% gentler declines than the previous three months.
It was worse in the North East, Northern Ireland, and East of England, where starts fell 30%, 29%, and 19% over the preceding three months.
Despite low construction starts, residential activity is stabilizing.
Glenigan economic director Allan Wilen said: “Construction starts remain low after sharp falls earlier in the year“ regarding the December construction index.
However, there are faint signs of residential activity stabilizing. The prior three months saw minimal change in private housing starts. According to our newest Forecast, this may be the first indicators of the second-half 2024 recovery.
However, high borrowing rates and a poor economy continue to hinder private non-residential investment, and government-funded health and education starts fell dramatically from the previous three months.
CIP to Build 1GWh BESS in Scotland
Original Source: CIP to proceed with construction of 1GWh BESS in Scotland
UK BESS project London Gateway (rendering above), developed by gas trading business Intergen, has planning clearances for up to 900MWh capacity. Alcemi’s project could surpass that.
Renewable energy investor Copenhagen Infrastructure Partners (CIP) has announced the start of construction on its 500MW/1,000MWh Scottish battery energy storage system (BESS).
The ‘Notice To Proceed’ project, developed by network solutions provider Alcemi through CIP’s Flagship Funds, will be built in Coalburn, southeast of Glasgow. Operation is expected in Q4 2025.
Solar Power Portal previously reported that Alcemi chose the project’s location to minimize network constraints and support the national transmission grid. The company claimed the project had “undergone extensive environmental impact assessments to ensure it meets the highest sustainability and safety standards”.
The Alcemi-CIP partnership developed, built, and operated a 4GW portfolio of UK energy storage assets in March 2022.
Alcemi CEO Mark Williamson said: “This is a huge first step for the Alcemi-CIP partnership, and we look forward to continuing working with our partners on projects like this, that enable the UK to transition from fossil fuels to clean energy.”
Alcemi said e-Storage will supply the SolBank battery system for the 2-hour project. The remaining plant work will be done by H&MV.
Canadian Solar’s e-Storage, a component of CSI Solar’s manufacturing business, launched SolBank in September 2022. The technique uses liquid-cooled lithium iron phosphate (LFP) batteries, active cell balancing, multi-level fire safety systems, and more.
Our sister publication Energy-Storage.news reported that Solbank is helping CIP expand into Australia with its 240MW/480MWh Summerfield battery storage project in South Australia.
The 2025 project will discharge surplus renewable energy generated at off-peak times to support the South Australia and Victoria grid during demand peaks.
Pre-tax loss for Laing O’Rourke is £288m
Original Source: Laing O’Rourke posts £288m pre-tax loss
Group accounts released by Laing O’Rourke today show a £288m pre-tax loss last year.
Laing O’Rourke’s top line revenue grew 13% to £3.4bn in the year to 31 March 2023, but it lost £276.6m operatingly and £288.1m pre-tax.
£195m of exceptional items are mostly related to an Australian contract that was terminated in 2017 but is still being arbitrated.
Inflation decimated profit margins on some UK contracts, causing Laing O’Rourke to lose £78.8m in pre-exceptional EBIT.
The current financial year began with a record order book of £10.0bn, up 16% from £8.6bn.
CEO Ray O’Rourke said: “During FY23, geopolitical upheaval had profound inflationary effects, impacting the global economy, households, the sector, and our business. Official estimates revealed building inflation reached 26% in 2022, the highest in 40 years.
“I thank all our colleagues for their hard work over the years that has kept Laing O’Rourke resilient. I am optimistic with a record order book and a return to profitability in the first half of FY24.
We keep winning work in our priority sectors, which boosts our order book and reduces our vulnerability to market conditions beyond our control. Our investment in goods, digital tools, and systems to harness advanced manufacturing’s productivity, quality, and safety benefits fuels our business confidence. Our intentions to accomplish large, complex infrastructure projects in a new way excite me.”
CFO Rowan Baker said: “I am encouraged by the fact that in FY23 we delivered strong pre-exceptional group revenue growth of 13% (to £3.4bn) versus FY22, ended the period with gross cash of £428.1m, net cash of £286.3m, and added £1.4bn to our group order These bode well for our future.
We faced exceptionally difficult market conditions this trading period, together with the entire UK construction sector. Few of our UK fixed-price projects were affected by unprecedented inflation. While it had no immediate cash impact, provision for an extraordinary item on an Australian legacy project increased our loss.
“The business performed well in the first half of the current financial year. Our revenue rose 22% year-over-year and £31.4m EBIT exceeded management’s expectations.”
In the company’s annual report, Ray O’Rourke again criticized clients and called for industry change.
He stated, “During my long career, I cannot recall such a sharp cost surge. We have worked with customers to mitigate these effects and keep projects on pace, but they have not always supported us in challenging situations. Inequitable risk-sharing fuels construction turmoil. It affects our business and employees, and it tells me that fundamental change is needed more than ever.
“The sector must adopt manufacturing-led construction methods enabled by technology and innovation. Our DfMA 70:60:30 operational model, which is being implemented on projects, shows the sector how to engage in advanced manufacturing.
“It is the only way to change our work. Making such a transformation will allow us to recruit more diverse people to the greatest industry and increase productivity, giving clients assurance. It will also make the built environment more sustainable and improve the health, safety, and well-being of our greatest asset—the people who deliver every day.”
Summary of today’s construction news
Economic growth and the building industry both faltered in 2023. Investment cooled as a result of economic uncertainty, which contributed to this lacklustre growth. Rising mortgage rates, household budget crises, and the end of Help to Buy all had an impact on the housing market, the primary building sector. Meanwhile, there were record-high borrowing rates, increasing inflation, and the greatest construction insolvencies ever recorded in the second quarter. Furthermore, the December Construction Index from Glenigan reveals a 25% decline in project starts compared to the previous year in the UK. Both the residential and non-residential sectors of the built environment encountered difficulties. An annual decline in new project starts is shown in Glenigan’s December Construction Index. In addition, the 500 MW/1,000 MWh battery energy storage system (BESS) in Scotland is set to begin construction soon, according to renewable energy investor Copenhagen Infrastructure Partners (CIP). Coalburn, to the southeast of Glasgow, will be the site of the ‘Notice To Proceed’ project, which was created by network solutions firm Alcemi with the help of CIP’s Flagship Funds. In Q4 of 2025, operations are anticipated to begin. On top of that, the top line revenue for Laing O’Rourke increased by 13% to £3.4 billion in the year ending 31 March 2023, but the operating loss was £276.6 million and the pre-tax loss was £288.1 million. Laing O’Rourke lost £78.8m in pre-exceptional EBIT due to contract profit margins being slashed by inflation in the UK. At the start of the current fiscal year, the order book was £10.0bn, a 16% increase from £8.6bn.