A Snapshot of Construction within the Industrial Sector during May 2020 following Lockdown

Things have changed quite a bit since our last snapshot at the end of last month.  There is now far less uncertainty around the ability to keep building sites open whilst managing the implications of social distancing. All of our industrial building sites are now open for business with safe methods of working in place. It is also encouraging to see forward momentum with 8 new Goodrich schemes contracted to start on site since the March lockdown.

There has been some concern around the ability to secure new utility connections, however utility providers have mobilised and are now progressing with new connections from 11^th May. There will undoubtedly be some lost time while the providers catch up with workload, but we see this as a very positive step forward and not a long-term issue.

The situation with material supply also seems to be improving, with the UK’s largest builders’ merchant, Travis Perkins, opening more and more branches throughout England. This is a trend that we will hopefully start to see in Scotland, Northern Ireland and Wales in the coming weeks. We are, however, keeping a close eye on specialist equipment like transformers, cabling, lifts, pre-cast concrete, etc. We suspect we will see some future delivery delays resulting from the manufacturing closures in March and April, however many of these delays should be accommodated within project periods for those in their early stages. Projects nearing completion will clearly be impacted harder by those manufacturing closures.

Accommodation for those travelling to work on site was a big issue and remains a challenge for most, however we are seeing some innovation in this area with contractors leasing residential space and hotels actively marketing their rooms for construction workers.

We don’t presently see any real likelihood of programme prolongation for industrial projects being tendered now, or those that are about to start. However, we will continue to monitor this closely and update our view accordingly. Certainly, the Government’s recent move to permit construction sites to operate 6 days a week and up to 9pm in the evening will offer some opportunities to recover any lost time – let’s wait and see on this one, we suspect there may be some local push back on this initiative.

It was noted within our last snapshot that contractors may need longer to tender, perhaps 7 to 8 weeks. However, with most in the industry utilising virtual meetings and estimating teams working from home, the elongation of tender periods may not be as bad as we first thought. We are currently recommending 5/6 weeks to tender a well-defined industrial design and build scheme.

Tender returns at present are likely to be more competitive in terms of the overheads and profit applied as the number of schemes issued for tender has cooled slightly. However, any downward pressure on price is likely to be balanced by increased preliminaries and uplifts on sub-contractor costs. To explain this last statement in relation to sub-contractor costs, we are noticing contractors are moving towards local sub-contractors rather than those that might be cheaper but would need to travel. This change in sub-contractor selection may result in a short term upward pressure on pricing, particularly in the South East and Central London area.

Going forward we haven’t seen any concerning drops in new industrial enquiries with 7 million sq ft passing over our desks since mid-March, and the conversion rate appears at a reasonable level too with 8 new contracts starting on site in the same period.

We suspect that more tenders will start to flow into the market over the coming months and the opportunity to benefit from this presently competitive market will start to dwindle. Therefore, we are recommending that now is a good time to tender, particularly if your industrial scheme is outside of the M25.