Written by Damon Schünmann, Strategic Consultant at Barbour ABI
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In this fifth instalment in the Get fit for Brexit series, Barbour ABI takes a look through the eyes of two major M&E subcontractors to get an overview of forthcoming sub-sector activity, and where suppliers might benefit from taking a look.
Steve Wignall is MD at Imtech Engineering Services, the second largest M&E specialist in the UK. With a 2019 posted turnover of £388M, it has a nationwide coverage and a large footprint in most sectors, barring water and to a lesser degree residential.
Wignall says that while the market is showing signs of life, there is a potential twist. “We’ve not seen anything happening in commercial office [jobs] all year but there are signs of the London market coming back to life,” he says. “We expect to be bidding a few commercial office schemes in London next year – they seem to have gone past the board approval stage. Our design partners are working on them as we speak so we’re tracking quite a few London schemes.
Then he suggests there are indications of a possible changing market, and he’s not referring to volume. “This is red hot off the press – I’ve [very recently] had a couple of conversations on this [about London projects] that seem to be being redesigned. So, it’s not now the conventional building with big open plan offices and rows of desks, or even cellular offices,” says Wignall.
“There seems to be a greater proportion of meeting rooms and collaboration space; almost redefining the purpose of an office away from a place where lots of people sit at desks – it’s something to watch, based on two unrelated conversations in the last two weeks where the observations have been the same,” he says. “Maybe the offices of the future will be designed very differently – not where lots of people sit nine to five, but more collaboration and meeting facilities.”
“Maybe the offices of the future will be designed very differently – not where lots of people sit nine to five, but more collaboration and meeting facilities.”
We are currently inundated with healthcare opportunities,” says Wignall. “The government has been quite vocal in promoting shovel ready healthcare projects – we’re starting to see lots of consultant and main contractor activity and we’ve had early interviews with a number of NHS Trusts over this. As always with healthcare, it tends to be outside the M25, although there’s Great Ormond Street Phase 4 and although it’s been around for a while now it seems to have fresh impetus.
“But predominantly the healthcare projects are spread across the UK,” he says”. It’s a mixture of major hospital schemes and smaller secondary schemes. It’s primarily projects coming through the P2020 [ProCure2020] route and we’re at [ProCure22] at the moment. We’re anticipating healthcare to be very active over the next five years – as it’s been in the past – and for those projects to cover the regions rather than central London.”
“Predominantly the healthcare projects are spread across the UK,” he says”. It’s a mixture of major hospital schemes and smaller secondary schemes.”
“We’ve seen a big uptick in activity in data and distribution centres, what I call hi-tech industrial. Data centres are very, very active at the moment. It’s all home counties [work]. Data centres can range from £30 to £100M per project so I’d guestimate there’s a short-term pipeline of £1bn in the one to three-year horizon in the UK.
Tom Holbrow is regional business development management with SSE Enterprise Contracting, another M&E giant that reported a 2019 turnover of £319M.
While Holbrow agrees with Wignall on the surge in data centres in the region, he adds that market growth includes the provision of new capacity with hyper-scale projects. These are part of a generational change in technology, which includes provision for the roll-out of 5G and is seeing the refurbishment of older facilities. He says this sector will not be limited to the South East as the UK embraces more localised and ‘last mile’ data centres.
“It’s because of the speed of data transfer,” he says. “If we’re all going to be using automated electric vehicles operated by data signals, you can’t have buffering or you’re going to crash your car.” He makes the point that increasingly power hungry data centres will normally need to be planned and sited hand-in-glove with the new power generation capacity being built in the UK.
“If we’re all going to be using automated electric vehicles operated by data signals, you can’t have buffering or you’re going to crash your car.”
Distribution centres for online retailers also means hi-tech storage arrangements and this is another area of rapid growth in the UK. “It’s not dissimilar to data centres in that we’ve seen a lot of fast-tracked [projects] brought to market very quickly for delivery within 12 months,” says Wignall. “This is a very short-term ‘here and now’ demand, and again it’s a national one. We’ve seen it across the South West, the midlands and the North East in particular.”
He says this market expansion has an obvious correlation to growth in the online market, in large part driven by the Covid pandemic. “It seems to me there’s a pretty direct connection,” he says, adding that it is driving modern building techniques. “All of these [rapid] projects, whether they’re in healthcare, distribution or data centres, drive offsite prefabrication,” he says.
“We’re active in the nuclear sector because of our parentage with [French energy business] EDF,” says Wignall. “It’s on a different economic cycle than [that dictated by] the economy so we’ve not seen fluctuation in nuclear – it’s pretty constant. The news at the moment is that the Chinese are desperate to invest in new nuclear technology in the UK. CGN [China General Nuclear Power Group] are in a joint venture with EDF for the provision of HPC [Hinkley Point C] but they’re also looking at a second reactor at Sizewell C. That’s in for government consultation at the moment and I believe CGN are looking at other sites in the UK at the moment on their own.
Sticking with infrastructure, Wignall says the UK’s major new-build rail scheme should be delivering work very soon. “For HS2, from a building services perspective there’s not a lot that has come to market yet, but we expect that to change next year,” he says. “It’s a 10-year programme, but there are stations, depots, shafts and portals and tunnel fit-out contracts that we expect to see coming to market over the next two years.”
“[On HS2] there are stations, depots, shafts and portals and tunnel fit-out contracts that we expect to see coming to market over the next two years.”
Holbrow provides a regional fly-by of movement in the market. “Life sciences is a sector which [with Covid], is very much of interest at the moment,” he says. “With pharmaceuticals and research [construction activity] already peaking, I think we will see that continuing and we’re tracking continuing and increased funding in the sector. From a regional perspective, that tends to push you towards Cambridge and East Anglia as well as Oxford. The North West also has a strong life sciences research presence, with a number of research organisations there, which is attracting an increased level of activity.”
Wignall concurs. “It’s a sector we’re looking at very closely. Not surprisingly there’s a lot of interest and it does centre on the main universities. We are tracking our consultant colleagues and the main contractors on projects that are coming onsite in the next 12 months. It’s generally more biotech – such as cancer research, rather than physics, in terms of what’s coming through the pipeline.
“It’s generally more biotech – such as cancer research, rather than physics, in terms of what’s coming through the pipeline.”
Here, perhaps, is an anomaly that might not have been expected in the leisure market in the current climate. “We are very surprised about the number of hotel schemes coming to market,” says Wignall. “You would have thought that with the drop off in [hotelier] cash flows, everything would be suspended, but that’s not the case. Particularly around London and the other major cities there are still schemes coming to market – it’s the high end boutique hotels,” he says.
“If you start hotel work now then you’re not taking revenue for two to three years, so I guess people are looking beyond the pandemic to the underlying demand for accommodation. [Clients] have secured funding and are looking beyond the immediate crisis,” he says.
“We are very surprised about the number of hotel schemes coming to market,”
“When I think manufacturing [pipeline] I immediately think of the Midlands and possibly the North East,” says Holbrow. “There’s going to be an impact – there already is because of Covid and [with Brexit coming] I’m not quite sure which way to call it at the moment.” He offers the positive scenario. “Because of transport logistics issues and delays getting across borders, you could perhaps make a case for more self-reliance with localised and less extensive supply chains. If that was to be, the midlands and the North East primarily would benefit from that.”
He says car manufacturing is a mixed bag right now, and again, it’s hard to discern the market: “We’re seeing things like Bentley announcing their [next] car’s going to be electric and there’s a Bentley facility in the north – so that’s nice and localised, but then you’ve got Japanese manufacturers closing down car plants. There’s a lot of turmoil and volatility in that marketplace at the moment. [Contractor work] with Nissan is continuing in the North East, but Honda is closing down a plant in Swindon so I’m just keeping a watching brief on that sector at the moment, it’s going to be driven by demand.”
This sector very much seems to be a split picture according to Holbrow. “There’s a lot of resilience in the schools [market] as there are frameworks and funding in place to help them to continue to develop. So I think [work here] will remain strong. The question mark is around colleges and universities.”
Wignall is of the same mind that this is the unknown area right now. “There are projects in the pipeline but it’s on a ‘go-slow’ while universities come to grips with overseas student numbers [dropping off due to Covid]. There’s uncertainty in that market.
“There’s a lot of resilience in the schools [market] as there are frameworks and funding in place to help them to continue to develop.”
Not generally considered a sector in itself, estate decarbonisation has nevertheless been getting a head of steam. Wignall outlines one such initiative. “This has come to life pretty quickly – back in July there was a relatively low key announcement from the government of a billion pounds of funding for public sector low carbon projects,” he says. “This is a little bit different, because what they’re asking is for the industry and clients to propose projects to spend this money on.”
He’s referring to the short-term opportunity of the Public Sector Decarbonisation Scheme that will provide grants to fund energy efficiency and heat decarbonisation measures. Businesses that wish to get involved will have to be quick off the blocks, with the final date for applications scheduled for 11 January.
“This is [things such as] de-steaming hospitals,” says Wignall. “A lot of old hospitals have big steam boilers which consume huge amounts of fossil fuels and are very carbon unfriendly. It’s about replacing those and reducing the carbon footprint of the NHS. He says it also encompasses introducing LED lighting and can include many other energy conservation projects. “We have quite a number of [these types of schemes] in our pipeline,” he says.
Holbrow adds some context to the overall picture. “Prior to the pandemic, what we were looking at across the UK over the next 18 to 24 months was a relatively flat construction market performance, albeit with bright and dark spots,” he says. “Obviously that baseline has been reduced somewhat now by Covid and what I see is continuing turmoil in the marketplace [due to the combination of Covid and Brexit].”
A mixed bag of activity it may be, but there’s a saying that one of the ways up from a recession is to build your way out of it, while at the same time creating lasting assets. If this is to be the case, then not just the industry, but the country at large would do well to help focus private and public sector clients – as well as political will – on some of these bright spots.