Attractive and fit for purpose?

Economic Week In Review | Issue 294 | 23 August 2021

Materials and commodities

  • Green steel | Swedish venture Hybrit has delivered its first batch of steel made without coal to its first customer, Volvo AB as part of a trial before full commercial production in 2026. Coal-generated steel is reported to be responsible for 8% of global greenhouse gas emissions. The new steel will be produced using fossil-free electricity and hydrogen.
  • Asphalt | Highways England has pushed road builders to use warm mix asphalts (WMA) as standard to achieve net-zero carbon emissions. It claims that WMAs offer CO2 savings of around 15% compared to traditional hot mixes and could save 61,000 tonnes of CO2 (roughly 300 million miles of car journeys).
  • Builders’ Merchant Sales in Q2 2021 were 20% higher than in Q2 2019, and four categories (timber and joinery, ironmongery, heavy building materials, and landscaping) had their best-ever quarterly sales.
  • Container ship supply | Orders for new boats has increased but new capacity will not enter the market for several years. To add to the problem, many ships are overdue for scrapping for environmental reasons and the number of shipyards globally has fallen by two-thirds since 2007, the last peak in shipping volumes reflected in the Baltic Dry Index.

UK construction and property news

  • Industrial space due for completion in 2021, according to Knight Frank, has fallen 9.25% since April as material shortages have caused completion dates to be pushed out.
  • London office market | Various reports have suggested that the London office market could be recovering as investors are attracted to yields that are higher than elsewhere in Europe. Whilst the office vacancy rate has increased, this has largely been in secondhand space, a recent dearth of quality space. Sales of office developments have continued, albeit at a slower pace, but generally at or above values seen pre-Covid.
  • Retail vacancy rates increased between Q1 and Q2 with shopping centres seeing the highest vacancy rate of 19.4% in the first half of the year, followed by high streets at 14.5%. Greater London had the lowest vacancy rate of 11.1%, and it was highest in the North East at 20.6%. Local Data Company suggests that the rate of increase has slowed as recent CVAs and administrations have been completed, but the rate is not expected to improve much into 2022.
  • HS2 debate | After a public petition asking the government to “stop work on HS2 immediately and hold a new vote to repeal the legislation” was signed by more than 150,000 people, HS2 will be debated by MPs on 13th September.
  • HS2 eastern leg | Rumours emerged over the weekend that the eastern leg (between Nottinghamshire, Birmingham, Sheffield, and Leeds) of HS2 is to be immediately mothballed in an effort to save £40bn.
  • Heat pump warning | The Federation of Master Builders’ Chief has said that heat pumps cannot replace gas boilers with current technologies as they are too noisy, too expensive and cause significant interruption during installation as they are not compatible with existing piping. Currently, the government plans to ban sales of new gas boilers from 2035.

UK economic news

  • Brexit labour concerns | Restaurant suppliers are the latest group to announce that post-Brexit immigration restrictions are causing staff shortages. 2 Sisters Food Group (which supplies KFC and Nando’s) said that whilst Covid-19 has affected the workforce, immigration restrictions have had a more severe effect. Poultry workers are currently not eligible for a “skilled worker” visa and 60% of the sector’s 40,000 workers come from the EU. The Association of Independent Meat Suppliers is talking to the Ministry of Justice looking to fill vacancies with prisoners.
  • HGV driver bidding war | The shortage HGV drivers is encouraging many retailers and logistics firms to give bonuses to new and existing drivers. Gist (transports for Marks and Spencer, amongst others) is offering £5,000 in total, Veolia has offered £1,500, and Marks and Spencer is offering £2,000.
  • Unemployment | June and July showed a large increase in job vacancies in the UK and the unemployment rate dropped to 4.7%, 0.2% lower than in the previous quarter. It is useful to remember that an unemployment level of between 4% and 5% is considered optimal.

Global economy

  • Wealth redistribution | China’s President Xi Jinping has called for more “regulation of high incomes” and for “high-income groups and enterprises to return more to society”, prioritising “ common prosperity for all”.
Tender Price Index

Published every six months, our Tender Price Index is an analysis of inflation price deviation in construction prices. Click on the link above to view our most recent Index.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,087.90 -1.81 18.09
FTSE 250 23,750.89 -0.16 35.12
Nikkei 27,013.25 -3.45 17.52
CSI 300 4,769.27 -3.57 0.41
S&P 500 4,441.67 -0.59 30.75
Nasdaq 14,714.66 -0.73 30.08
CAC 40 6,626.11 -3.91 35.33
Dax 15,808.04 -1.06 23.84
$ per £ 1.3620 -1.70 3.99
€ per £ 1.1654 -0.78 4.77
Gold £/oz 1,307.32 1.90 -11.81
Brent Oil $/barrel 65.18 -7.66 46.97

Weekly Summary

Questions over HS2 could unsettle the industry as many companies have looked to infrastructure work such as HS2 to bolster their order books over the last year, and contracts worth more than £15bn have already been awarded. However, it is positive to see confidence returning to the London market as occupiers define their space demands in light of new hybrid working patterns.

As we look to ensure that buildings are fit for purpose beyond today, advances in low-carbon materials and technologies should be welcomed, but in light of questions about inflation and viability, it is important that we understand how these initiatives can be weaved into real estate products that are not only sustainable in the widest sense of the phrase but can be delivered efficiently and cost-effectively.

Initially, shortages in the food and retail industry could seem irrelevant to the construction and property industries but as all sectors suffer from post-Brexit labour shortages, construction needs to ensure that it can still attract the people it needs.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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