Downturn for 2009

Rising materials prices combined with the effects of the credit crunch on developers seeking to borrow money are thought to be affecting the viabiliry of some projects.

But the downturn is not expected to have a major impact on the overall health of the construction market, they said.

Order books are being reported as full across construction at the moment.

The Civil Engineering Contractors Association's (CECA) January 2008 workload trends survey published last week reported a rise in total workload for almost two thirds of respondents over the past year.

But the housing and commercial sector is likely to follow the rest of the economy in a slowdown as demand for new offices and houses drops.

"The effects will probably not be seen for a year or so as there is a strong workload, but the sector is not immune," said PriceWaterhouse Coopers Global Construction Leader, Jonathan Hook.

Ernst and Young construction audit partner Graham Prothero said it was a mistake to say that because commercial property prices were falling that the property and construction industry was in dire straits.

"Developers are assessing what the demand is," he said.

"It's not Armageddon and plug pulling across the board. They're asking: 'does their appraisal still stack up or should they sit on their planning permission for a while?'".

CECA economic adviser Jim Turner said that signs of the commercial and residential markets weakening had failed to stop developers placing orders.

"But whether they'll press ahead at the same speed, I can't tell you," he added.

"If there is no tenant, they will slow down as they have no income stream. For the time being, there is not really much sign of that pressure."

In addition to the credit crunch, which has made it harder for developers to secure loans to keep projects running, material price increases could affect the viability of some projects.

Rapidly rising material prices are squeezing operating margins and threatening future workload volumes where clients have to work within tight budgets.

Reinforcement was reported as increasing by £100 a tonne this week and Corus is to increase the price of its steel sections by £60 per tonne from April. Timber prices have also increased by 20% from last year.

"If you're trying to put together a development, there's an equation you have to do," said Davis Langdon associate in cost research Peter Fordham.

"The more costs go up, the less viable the project becomes."

What could be affected?

Shard, London Bridge
Negotiations are ongoing for a fixed price contract for the Shard of Glass by London Bridge which will be the country's tallest building at 310m high. The £2bn project was recently rescued by Qatari bankers after it struggled with funding.

Walkie Talkie,
Fenchurch Street, London
Land Securities has announced that it will wait until the end of the year before announcing procurement methods for the main contract of 20 Fenchurch Street, also known as the Walkie Talkie in a bid to contain costs.