What does BREXIT mean for the Construction Sector?

After the surprising referendum result on the 23^rd June in the referendum all we have seen in the subsequent six weeks is more uncertainty and the realisation that there were very few contingency plans in place in most sectors including construction.

On reflection, it is probably fair to say that both sides exaggerated the implications of a remain or leave result and that the initial falls in equities have been largely reversed. So now we are in a period of uncertainty as to what the future will look like which increases the risk especially in Capital Expenditure so it is reasonable to expect a reduction in construction activity.

In fact the Markit/CIPS UK ConstructionIndex has fallen for two consecutive months in June and July reflecting the biggest decline in construction activity since 2009 most markedly in the commercial building sector. However, the market would appear to be more resilient than expected and as with the rest of the economy the sector has adopted a “wait & see” approach to investment.

The Construction Sector was largely in favour of remain, in fact one survey had the industry voting 85% to remain. Concerns were that some 60% of building materials were imported and a fall in the value of the pound would increase input costs. The reliance on overseas labour to undertake construction activities, the investment of the European Investment Bank of £7.8bn in 2015 alone and the uncertainty of the future location of the banking, investment and insurance industries and their associated advisors were also issues of concern. As mentioned before this uncertainty increases risk and therefore investment decision in all sectors of construction.

This uncertainty is not going to be resolved for some time until the exact details of the UK exit from the European Union are known. Moreover, the risks can be managed by having contingency plans in place (under development currently) and taking advantage of current opportunities in the market.

For instance, the cost of borrowing at present is at an all-time low and it is the ideal time for the British Government to borrow to fund much needed infrastructure projects to increase the overall competitiveness of the British economy.

The housing sector is still under building every year and will remain strong despite BREXIT and the government could consider borrowing to invest in the social housing sector to boost activity in an area where there is still huge demand.

While commercial development has been strong with low vacancy rates (circa 4%) and a significant slowdown in forward orders, this could be cyclical as 30% of new stock currently in development will come online in the next twelve months. Conversely a weak pound can be used to promote Britain to foreign investors and with the current levels of liquidity available, projects can be funded and commenced on short timescales.

In conclusion the market will not grow as fast as in recent years, however Experian is still predicting growth in the construction sector of 2% (down from 4%) in 2016 and some challenges to overcome. But this has always been the reality, remember when the UK did not join the single currency, the doom sayers were predicting economic armageddon and we survived and grew stronger.

The Construction Sector has proved resourceful and resilient in the face of previous challenges and it can look forward to the future with confidence whatever may come.

The changing face of Croydon

“Croydon is on a journey of transformation and for the first time in perhaps a generation has started to get more good publicity than negative publicity” Councillor Newman, CroydonCouncil.

Croydon’s skyline is dramatically changing and for a town that was seen as a mini Manhattan in the late 1950’s and early 1960’s when a majority of existing high-rise buildings were built, the new developments are looking to change the dynamic in Croydon Town Centre.

It is probably fair to say that Croydon Town Centre clears out at 5:30pm every evening. However, Westfield’s experience in London and Stratford is that if you create the environment, the people who shop there in the daytime and the residents commuting back in the evening will stay and you can create a vibrant location that people will enjoy until midnight.

This thinking is at the heart of the Croydon Partnership, a joint development between Westfield and Hammersons who plan to spend £1.4bn on the refurbishment and upgrade to the existing Whitgift Centre in the heart of Croydon. The Whitgift Centre – originally opened in 1968 – was the largest covered shopping centre in Greater London until the opening of Westfield London in 2008. Its refurbishment including what is required today with entertainment, cafes, bars and restaurants in addition to retail will put the heart back into Central Croydon and stop it’s clearing out at 5.30pm daily.

There is also the major re-development around East Croydon station including Ruskin Square to the west of the station and the large Redrow Homes development, Menta to the east. Ruskin Square will comprise some 5 Grade A Office Buildings with 1.25m, 625 new homes and 100,000 sq ft of retail, cafés, bars and restaurants.

There are many other residential developments such as Saffron Square and The Island and the refurbishment of former commercial office buildings being converted into apartments such as Delta Point and St Anne House. This increase of people residing close to the Whitgift Centre and Ruskin Square will show a substantial increase in demand for leisure and entertainment facilities.

The potential for Croydon is enormous as its current population of over 350,000 is forecasted to grow to over 400,000 in the next five years and according to Robin Dobson from Hammersons. Croydon has a catchment population of 3.3m and a potential spend of £17bn and with the West End becoming increasingly unaffordable, Croydon is uniquely located to become a new retail leisure hub destination for South London.

Croydon is also developing as a digital hub and is being promoted as an ideal location for start-ups and established tech businesses. With an abundance of commercial space  available at rent of less than half of those in Central London and 25% of its population under 16 – it has the ideally structure to succeed.

All these changes are being promoted and overseen by Croydon Council and its Planning Department has a definite strategy of where it is going by placing people and their needs at the heart of the Development Plan.

Croydon is a very good place to be in at the moment. If you are passionate about construction and would like to be part in any of these exciting projects, you can always contact recruitment agencies like Calco Services that can help you be part of Croydon life.