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KN45029 KEY NOTE CONSTRUCTION INDUSTRY (UK) DECEMBER 1999

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ISBN 1-84168-014-1

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EXECUTIVE SUMMARY

MARKET OVERVIEW
The construction industry accounts for around 8 percent of gross domestic produce (GDP) at current prices, contributing to the economy in terms of financial input, materials and employment. There are over 167,575 firms classified to construction, employing around 1.4 million people and most firms are small, with over 50 percent being sole proprietors. 25.3 percent of companies have turnover below £49,000 and only 1.1 percent over £5m. The industry has a history of reacting sensitively to economic downturns.
The number of small firms has declined somewhat, with the total number of construction companies accounting for 10.6 percent of VAT-based enterprises in 1998 as opposed to 11.5 percent in 1995. At the same time, private sector construction's share of total business investment has declined from 2.1 percent in 1997 to 1.9 percent in 1998. Despite these trends of decline, construction's contribution to GDP has grown from 7.4 percent in 1995. Moreover, a growing general trend amongst the larger companies is for a steady rise in turnover and profits due to increased efficiencies, whereas in the past the industry has accepted poorer margins.
Output of the construction market in 1998 was £62.06bn, having grown in value terms by 6.4 percent on 1997 and from £52.64bn in 1995. New work accounted for 52.4 percent of output value in 1998 and repair and maintenance for the remaining 47.6 percent. There is an increasing tendency for public sector work to be handled by the Private Finance Initiative (PFI), with companies often financing, designing, building and long-term managing the projects.
The UK has a number of experienced and reputable companies, many of which are able to compete abroad. Indeed, British companies were responsible for some £4.26bn of overseas construction work in 1998, with the US accounting for 42.5 percent.
The industry has been the subject of much research and development (R&D) since 1996/1997, with the recommendations of the Egan Report resulting in Best Practice schemes and a larger degree of partnering and innovation. Nevertheless, there is currently a shortage of skilled workers, although there are plans to address this with investment in training and information technology (IT).
The four key sectors which constitute the essential parts of construction activity are housebuilding, infrastructure, industrial and commercial, all of which use a considerable amount of building materials.
HOUSEBUILDING
The housebuilding sector represents 39.7 percent of construction output and was worth £24.63bn in 1998, having increased from £21.18bn in 1994. Repair and maintenance is the dominant sector, contributing 65.8 percent to housing output, driven by the fact that the UK has a very high degree of home ownership. New work accounts for the remaining 34.1 percent.
The private sector is the largest area and has been particularly buoyant in 1998/1999, given relatively low interest rates to date and improved consumer confidence. The majority of the key housebuilders have all seen profits rise, with the average value of properties increasing. The trend is now towards larger properties of three and four bedrooms and detached houses. The demand for housing obviously follows the requirements of the population, with the number of households in England set to rise by 15.2 percent in the period from 1996 to 2016. Within these figures, co-habiting couples and other multiperson households will show the greatest increases, with married couple households declining. Regionally, the South East accounts for the greatest number of private sector completions and this is expected to continue.
The largest housebuilders within the UK are George Wimpey PLC and Barratt Developments PLC. However, there are over 40,000 general builders firms and 3,600 building and civil engineering contracting firms, both of which categories could incorporate housebuilding to some degree. The total number of general builders has declined, although around 28 percent of the value of work done is still carried out by firms of less than 14 employees. Small firms of less than three employees also account for over two-thirds of all building and civil engineering contractors. However, in this case, firms of more than 80 employees are responsible for 79.6 percent of the value of work, with firms of more than 1,200 employees accounting for 32.7 percent. Clearly, the largest firms are able to offer economies of scale. Advertising spend by the housebuilding sector has increased to £19m, reflecting more optimistic market conditions.
Current issues include dissatisfaction with the time taken to gain planning approvals for new housing, which many house builders regard as restricting sector growth and the debate over projections for new housing required, particularly in the South, to meet the needs of a growing population. At the same time, quality building land is becoming increasingly expensive and the Government has a target of achieving 60 percent of developments on brownfield sites by the year 2008.
The trend in housing starts is marginally positive with a comparison of the first 9 months in 1999 and 1998 showing an increase of 1.1 percent. However, a similar comparison for completions shows a decrease of 3.7 percent. These relatively disappointing figures may reflect the current difficulties encountered by house builders in obtaining planning permission or, more negatively, they may highlight an imminent slowdown in the housing market. Nevertheless, new housing is still expected to increase by a total of 7.9 percent over the forecast period from 1999 to 2003, and repair, maintenance and improvement by 18.3 percent. This takes into account public sector maintenance work which is to receive a boost.
INFRASTRUCTURE
Infrastructure is responsible for approximately 19 percent of construction new works, or £6.18bn, having increased from £5.15bn in 1994.
Roads constitute the largest sector at 26.5 percent of output value for new work in 1998, followed by gas, air and communications at 20.8 percent, water -- 14.4 percent, railways -- 14 percent, sewerage -- 12.3 percent, electricity -- 7.3 percent and harbours -- 4.2 percent.
The civil engineering sector tends to be concerned with infrastructure and there are just under 20,000 civil engineering firms in the UK, with numbers having increased dramatically since 1996. Firms of less than three employees account for 89.1 percent of the total and those with over 600 employees account for less than 1 percent. However, over 50 percent of the value of work is undertaken by the larger firms of more than 115 employees. Leading companies involved in the infrastructure sector, as well as other areas, are Mowlem and Balfour Beatty.
Infrastructure is also split between the public and private sectors, with increased use of the PFI and the volume of orders classified to the public sector reducing. Total infrastructure is expected to decline by a further 3 percent throughout 1999 with a modest upturn in the year 2000. Roads will show some growth, but improvements in the overall sector will be driven by rail due to The Channel Tunnel Rail Link, London Underground and investment by Railtrack.
INDUSTRISL CONSTRUCTION
The industrial sector is linked to the fortunes of manufacturing since it includes factories, warehouses and processing installations for oil, coal and steel. The private industrial new work sector is responsible for 6.1 percent of construction output or £3.81bn in 1998, which is relatively small compared to the other sectors. Factories account for the largest share at 67 percent of new work, warehouses for 30.4 percent and oil, steel and coal for 2.7 percent.
Business investment in this area is critical if the sector is to grow. However, manufacturing investment as a percentage of total business investment has declined over the period 1995 to 1998, from 22.5 percent to 19.5 percent, although in value terms it has increased and now stands at £20bn. Nevertheless, the bulk of investment has been in capital equipment rather than new buildings. Private clients and individual companies represent a key source of investment, but are unlikely to spend on new plant during harsher economic times.
New work is primarily in the private sector, which accounted for 97 percent of contractors' output in 1998. Once again, civil engineers are most likely to undertake work in industrial construction and the number of firms has increased by 84 percent since 1996, although the average value of work done has increased by only 29 percent over the period. The civil engineers employ more operatives than administrative staff with the former increasing by 15.1 percent in 1998, and the latter by only 6.8 percent. Many of the larger groups undertake industrial work, for example Laing and Costain.
The sector is likely to decline by around 7 percent throughout 1999, stabilising in the year 2000 and then increasing as business confidence improves. Over the 5-year period from 1999 to 2003, the total increase is likely to be 5.7 percent.
COMMERCIAL CONSTRUCTION
The commercial sector is the most diverse within the construction market and incorporates an increasing degree of PFI work for `public benefit' projects such as health and education. However, there is still a large proportion of such work included under public non-housing. In total, private commercial work equated to £9.92bn in 1998 with public work in similar areas at £3.89bn. The private commercial sector accounts for 16 percent of construction output and is the biggest overall sector within new work. The largest share within private commercial is offices at 35.2 percent in 1998, followed by shops at 25.8 percent and entertainment at 24.1 percent. In the public sector, schools and colleges have the largest proportion at 24.8 percent, followed by health at 19.7 percent and miscellaneous at 17.2 percent.
The building and civil engineering contractors are most likely to undertake regular work within the commercial sector and the number of firms has decreased by 27.8 percent since 1996, with the value of work done rising by 16.6 percent. A third of the value of work undertaken in 1998 was carried out by firms of more than 1,200 employees. The average turnover of the leading companies in the marketplace is well in excess of £200m, with some being multibillion pound public limited companies (PLCs). These large companies can obviously offer a broad range of expertise.
The sector is expected to grow significantly up to 2001 due to health and education, whereas retail and entertainment will slow down somewhat compared to previous years due to a decline in the number of out-of-town developments and the end of Millennium project developments. The private commercial sector as a whole will increase by 1.7 percent over the forecast period.
BUILDING MATERIALS
The list of building materials used within the construction market is extensive and a selection of ten materials have therefore been chosen which typify sector activity. These include sand and gravel, bricks, cement, ready-mixed concrete, clay and concrete roofing tiles, concrete building blocks, structural steel, sawn and laminated wood and builders' carpentry and joinery.
The combined market size of these product groups is estimated to be £8.2bn in 1998. The industries are typified by a large number of small- to medium-sized companies, with around 15 percent having turnover over £1m and 4 percent above £5m. There are a number of key players forming part of large groups, with interests in several sectors and including Blue Circle and RMC. The sector has seen a degree of rationalisation in recent years and there is a growing level of foreign ownership, especially within the brick market. There have also been recent takeovers both by foreign and UK-based companies within the aggregates, cement and concrete industries.
Distribution of building materials tends to be in large part through the builders' merchants, with members of the Builders Merchants Federation (BMF) collectively accounting for £6.2bn worth of building materials per annum. Within the builders' merchant sector there has also been some rationalisation with an estimated 40 percent of the market now in the hands of three players -- Meyer, Travis Perkins and Wolseley. The sector is currently experiencing a positive trend, with sales of heavy materials through BMF members growing by 5.3 percent for the cumulative year to July 1999 compared with the first 6 months of 1998.
The strong pound continues to place UK construction materials manufacturers under competitive pressures both at home and overseas, although the majority of the products examined are not heavily dependent upon imports and, indeed, prices of many construction materials show steady rises throughout 1999. There is variation in the growth rate of each of the individual products, but it is expected that market size at current prices will have grown to £9.26bn by 2003, an increase of 13 percent on 1998.
THE FUTURE
The construction industry still remains dependent upon the performance of the economy as a whole. However, it is expected that the industry will see an overall improvement in activity over the forecast period due in part to increased investment in Government-supported projects. Growth areas will be offices, health and education, private housing (new build and refurbishment activity), railways and public housing improvements. Road maintenance will also improve to some degree.
Key Note forecast that the total construction market will grow by 9.2 percent over the forecast period from 1999 to 2003, with new work growing by 5.3 percent and repair, maintenance and improvement by 13.4 percent.
It is also anticipated that the industry will see further consolidation and streamlining of activities with companies focussing upon core expertise. The PFI will increase in popularity for public projects and the trend towards partnering and team work will continue, enabling the UK construction industry to become more efficient and competitive both at home and overseas.

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TABLE OF CONTENTS

Executive Summary
Market Overview
INTRODUCTION
DEFINITIONS
INTRODUCTION
INDUSTRY STRUCTURE
TRADE ORGANISIATIONS
MARKET SIZE AND SEGMENTATION
PEST ANALYSIS
OVERSEAS TRADE
KEY TRENDS
Table 1.1: Output of Construction Industry and GDP (£m), 1995-1999
Table 1.2: Business Investment by Industry (£m), 1995-1999
Table 1.3: Number of Enterprises by Standard Industrial Classification (SIC), 1998
Table 1.4: Number of VAT-Based Enterprises in the UK, 1995-1998
Table 1.5: Number of VAT-Based Enterprises in the Construction Industry by Type, 1998
Table 1.6: Number of Units in the Construction Industry by Turnover Size (£000), 1998
Table 1.7: Size Analysis of Private Sector Contracting Firms by Number of Employees (000), 1996-1998
Table 1.8: Size Analysis of Private Sector Contracting Firms by Number of Companies, 1994-1998
Table 1.9: Geographic Distribution of Permanent Private Sector Contracting Firms by Region (number of companies), 1994-1998
Table 1.10: All Personnel Employed in the Construction Industry (000), 1994-1999
Table 1.11: Employment by Private Contractors According to Trade, 1994-1998
Table 1.12: Output of the Construction Industry by Main Sectors at Current Prices (£m), 1994-1999
Table 1.13: British Construction Work Overseas by Value of Work Done at Current Prices (£m), 1993-1998
Key Note Field Research
INTRODUCTION
BUSINESS OUTLOOK
GROWTH RATES
SKILLS/TRAINING
INFORMATION TECHNOLOGY
OVERSEAS WORK
OTHER COMMENTS
Housebuilding
INTRODUCTION
DEFINITION
MARKET POSITION
KEY TRENDS
ORGANISATIONS
MARKET SIZE AND SEGMENTATION
OVERSEAS TRADE
INDUSTRY STRUCTURE
MAJOR PLAYERS
ADVERTISING AND PROMOTION
BUYING BEHAVIOUR
FORECAST 1999 TO 2003
Table 4.1: Comparison of Housing Output and GDP at Current Prices (£m), 1994-1999
Table 4.2: Output of Housing Sector of the Construction Industry at Current Prices (£m), 1993-1999
Table 4.3: Number of Housing Starts in the UK (000), 1993-1999
Table 4.4: Number of Housing Completions in the UK (000), 1993-1999
Table 4.5: Permanent Dwellings Completed by Type of Owner and Region, 1993-1998
Table 4.6: Permanent Dwellings Completed per 1,000 Population by Region, 1993-1998
Table 4.7: Output of Housebuilding by Subsector at Current Prices (£m) 1993-1998
Table 4.8: General Builders in the Housebuilding Sector by Turnover Size (£000), 1998
Table 4.9: Number of General Builder Firms (Private Contractors) and Value of Work Done (number of companies and £m), 1993-1998
Table 4.10: General Builders (Private Contractors) in the Housebuilding Sector in Great Britain by Number of Employees, 1996-1998
Table 4.11: Value of Work Done by General Builders (Private Contractors) in the Housebuilding Sector in Great Britain by Number of Employees (£m),
1996-1998
Table 4.12: Employment by General Builders (Private Contractors) in the Housebuilding Sector in Great Britain by Number of Employees (000 companies),
1996-1998
Table 4.13: Number of Building and Civil Engineers (Private Contractors) and Value of Work Done (£m), 1993-1998
Table 4.14: Private Contractor Builders and Civil Engineers in the Housebuilding Sector in Great Britain by Number of Employees, 1996-1998
Table 4.15: Value of Work Done by Builders and Civil Engineers (Private Contractors) in the Housebuilding Sector in Great Britain by Number of Employees
(£m), 1996-1998
Table 4.16: Employment by Builders and Civil Engineers (Private Contractors) in the Housebuilding Sector in Great Britain by Number of Employees (000
companies), 1996-1998
Table 4.17: Main Media Advertising Expenditure by Housebuilders (£000), 1998 and 1999
Table 4.18: Private Sector Dwellings Completed by Number of Bedrooms, 1994-1997
Table 4.19: Private New Housing - percentage of House Types in Total Starts ( percent), 1994-1998
Table 4.20: Estimates and Projections of Numbers of Households in England (000), 1996-2016
Table 4.21: Main Institutional Sources of Finance for House Purchases and Improvement - Gross Advances (£m), 1993-1998
Table 4.22: Forecast Number of New Housing Starts and Completions in the UK, (000 dwellings), 1997-2001
Table 4.23: Total Forecast Market for Housebuilding at Constant 1995 Prices (£m), 1999-2003
Infrastructure
INTRODUCTION
DEFINITION
MARKET POSITION
KEY TRENDS
ORGANISATIONS
MARKET SIZE AND SEGMENTATION
INDUSTRY STRUCTURE
MAJOR PLAYERS
BUYING BEHAVIOUR
FORECAST 1999 TO 2003
Table 5.1: Infrastructure Sector - Economic and Market Position of New Works at Current Prices (£m), 1994-1999
Table 5.2: Value of Private Contractors in the Infrastructure Sector at Current Prices (£m), 1993-1998
Table 5.3: Value of Contractors Output in the Infrastructure Sector by Type at Current Prices (£m), 1994-1999
Table 5.4: Contractors in the Infrastructure Sector by Turnover Size (£000), 1998
Table 5.5: Number of Private Contractor Civil Engineers and Value of Work Done in the Infrastructure Sector (£m), 1993-1998
Table 5.6: Number of Private Contractor Civil Engineers by Number of Employees in the Infrastructure Sector, 1996-1998
Table 5.7: Value of Work Done by Private Contractor Civil Engineers in the Infrastructure Sector (£m), 1996-1998
Table 5.8: Employment by Contractor Civil Engineers in the Infrastructure Sector by Number of Employees, 1996-1998
Table 5.9: The Leading Infrastructure Contracts Awarded by Contractor (£m), September 1999
Table 5.10: Orders to the Construction Industry in the Infrastructure Sector at Current Prices (£m), 1993-1999
Table 5.11: Forecast Orders to the Construction Industry in the Infrastructure Sector by Type of Work at Current Prices (£m), 1993-1999
Table 5.12: Forecast Infrastructure Sector at Constant 1995 Prices (£m), 1999-2003
Industrial Construction
INTRODUCTION
DEFINITION
MARKET POSITION
KEY TRENDS
MARKET SIZE AND SEGMENTATION
INDUSTRY STRUCTURE
MAJOR PLAYERS
BUYING BEHAVIOUR
FORECAST 1999 TO 2003
Table 6.1: Industrial Construction Sector - Economic and Market Position of New Works at Current Prices (£m), 1994-1999
Table 6.2: Value of Contractors Output of New Work in the Industrial Sector at Current Prices (£m), 1994-1999
Table 6.3: Contractors in the Industrial Construction Sector by Turnover Size (£000), 1998
Table 6.4: Number of Private Contractor Civil Engineers and Value of Work Done (£m), 1993-1998
Table 6.5: Private Contractor Civil Engineers by Number of Employees, 1996-1998
Table 6.6: Value of Work Done by Private Contractor Civil Engineers by Number of Employees (£m), 1996-1998
Table 6.7: Employment of Private Contractor Civil Engineers in the Industrial Sector by Type of Employee (000 companies), 1996-1998
Table 6.8: The Leading Industrial Contracts Awarded by Contractor (£m), September 1999
Table 6.9: New Orders Received by Contractors for the Industrial Sector at Current Prices (£m), 1993-1999
Table 6.10: Forecast Contractors' Output of New Industrial Work for the Private Sector at Constant 1995 Prices (£m), 1999-2003
Commercial Construction
INTRODUCTION
DEFINITION
MARKET POSITION
KEY TRENDS
MARKET SIZE AND SEGMENTATION
INDUSTRY STRUCTURE
MAJOR PLAYERS
BUYING BEHAVIOUR
FORECAST 1999 TO 2003
Table 7.1: Commercial Construction Sector - Economic and Market Position of New Works at Current Prices (£m), 1994-1999
Table 7.2: Value of Contractors' Output in New Private Commercial/Public Non-Housing Sector at Current Prices (£m), 1993-1999
Table 7.3: Number of Private Contractor Builders and Civil Engineers and Value of Work Done (£m), 1993-1998
Table 7.4: Private Contractor Builders and Civil Engineers by Number of Employees, 1996-1998
Table 7.5: Value of Work Done by Private Contractor Builders and Civil Engineers by Number of Employees (£m), 1996-1998
Table 7.6: Employment of Private Contractor Builders and Civil Engineers by Type of Employee (000 companies), 1996-1998
Table 7.7: Leading Commercial Contracts Awarded by Contractor (£m), September 1999
Table 7.8: New Orders Received by Private Contractors for Commercial and Public Non-Housing Sector at Current Prices (£m), 1993-1999
Table 7.9: Forecast Contractors' Output for the Private Commercial Sector by Constant 1995 Prices (£m), 1999-2003
Building Materials
INTRODUCTION
ORGANISATIONS
KEY TRENDS
MARKET SIZE AND SEGMENTATION
INDUSTRY STRUCTURE
MAJOR PLAYERS
INDIVIDUAL MANUFACTURERS
BUYING BEHAVIOUR
FORECAST 1999 TO 2003
Table 8.1: Sales of Sand and Gravel in Great Britain (000 tonnes), 1993-1999
Table 8.2: Apparent UK Market for Sand and Gravel (000 tonnes and £m), 1994-1999
Table 8.3: Production of Bricks by UK Manufacturers by Volume (million units), 1994-1999
Table 8.4: Apparent UK Market for Bricks at Current Prices (£m and million units), 1994-1998
Table 8.5: Production, Deliveries, Stocks and Apparent UK Market for Concrete Roofing Tiles (000 square metres of roof and £m), 1994-1999
Table 8.6: Apparent UK Market For Clay Roofing TilesÅ (£m), 1994-1998
Table 8.7: Cement Production, Deliveries and Apparent UK Market (000 tonnes and £m), 1994-1999
Table 8.8: Deliveries of Ready-Mixed Concrete (000 cubic metres and £m), 1994-1999
Table 8.9: Production, Deliveries and Stocks of Concrete Building Blocks (000 square metres), 1993-1999
Table 8.10: Apparent UK Market for Concrete Building Blocks (000 square metres and £m), 1994-1999
Table 8.11: Apparent UK Market for Supply of Structural Steel Products (000 tonnes and £m), 1993-1998
Table 8.12: Supply of Steel Products to the UK Construction Industry by Product Type (000 tonnes and percent), 1998
Table 8.13: Apparent UK Market for Sawn and Laminated Wood (£m), 1994-1999
Table 8.14: Apparent UK Market for Builders' Carpentry and Joinery (£m), 1994-1999
Table 8.15: Building Materials Producers/Manufacturers - Number of VAT-Based Enterprises by Employment Size (£000), 1998
Table 8.16: Building Materials Producers/Manufacturers - Number of VAT-Based Enterprises by Employment Size (number of employees), 1998
Table 8.17: Construction Materials Distributors in the Building Materials Sector by Turnover Size (£000), 1998
Table 8.18: Leading UK Brick and Tile Companies by Turnover (£m), 1997/1999
Table 8.19: Output of the Construction Industry by Main Sectors at Current Prices (£m), 1993-1999
Table 8.20: Builders' Merchants Sales in the Last 12 Months ( percent), Year to July 1999
Table 8.21: Forecast of Apparent UK Market for Selected Building Materials at Current Prices (£m), 1999-2003
Strengths, Weaknesses, Opportunities and Threats (SWOT)
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
The Future
INTRODUCTION
FORECAST 1999 TO 2003
Table 10.1: Volume of New Orders Obtained by Contractors by Type of Work at Constant 1995 Prices (£m), 1998 and 1999
Table 10.2: Forecast Output of the Construction Industry at Constant 1995 Prices (£m), 1999-2003
Further Sources
ASSOCIATIONS
PERIODICALS
DIRECTORIES
GENERAL SOURCES
HOPPENDSTEDT BONNIER INFORMATION SOURCES
GOVERNMENT PUBLICATIONS
OTHER SOURCES

Text © 1997 Key Note

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