In the last edition of our E-Bulletin we considered the state of the commercial property market, and the impact that is having on the construction industry. Three months on, very little has changed in that sector. There is still some activity in the investment market and still a perceived shortage of suitable product for the money that is chasing the high end investments, but not enough demand to stimulate development to fill the gap. The development market itself remains slow and will be for some time to come.
There are, however, certain sectors which are comparatively active at the moment, with an obvious example being the energy sector, and in particular renewable energy. Many organisations within the construction industry have transferrable skills and can, with an element of re-training or re-inventing, readily switch from advising on the design of an office block to advising on the design of a wind farm, or from carrying out the construction of a hotel to carrying out the construction of a waste to energy plant. In many cases the principals are similar, it’s just the sector and therefore the commercial and political drivers that are different. At Morton Fraser we have seen an increase in our involvement in energy projects over the last 3 – 6 months which tells us that our clients are looking at this sector as a more certain work stream than commercial property at the moment.
We have, in the last 3 months, also seen some high profile property company casualties. The administrations of the Kenmore Group and subsequently the Kilmartin Group may have been predictable given market conditions, and certainly there was much speculation, but that does not make them any less sad news for the industry, as these were two of Scotland’s star developers over recent years. Many such property companies are going to the wall with live projects still underway, which in a lot of cases the banks or administrators will want to see through to completion so as to realise any potential profit left in the development. There is additional construction work coming out of these types of scenarios, particularly for design and cost consultants if what is needed to get the project to completion differs materially from what was envisaged at the outset, which can often be the case. There can also be knock-on additional work for contractors and subcontractors. These are, however, small positives against the backdrop of a sector that is still very much struggling.
In the next edition of our E-Bulletin we may well be in the midst of a General Election. That would seem an appropriate time to take a look at what the Government has done to help the construction industry during the recession, and what more the next Government can do, whoever that may be.