At the end of 2018, we made an attempt to predict what might change in the construction industry and the built environment over the course of the following year. So how accurate were our predictions?
Well, while the industry wasn’t revolutionised in 2019, it appears there has been progress in all areas, as predicted.
However, development was perhaps a bit overshadowed by the economic situation and Brexit uncertainty, as the industry continued to put off major business decisions and investment. The situation has worsened as the year has progressed. In March, the Builders Merchants Building Index (BMBI) reported that year-to-date merchant sales were 5.9% ahead of the previous year but by September, this figure had fallen to 1.1%. It can also be difficult to detect positive change in a stagnant or declining market.
Here’s a reminder of what we asked, along with our assessment of how each has developed in 2019 (click on each heading to read the original article from last year):
This is a trend that has been ongoing for the last decade, but the pace has quickened in recent years. If we look at the numbers, the value of website sales in the UK non-financial sector among businesses with 10 or more employees rose by 21% in 2017 and 20% in 2018, according to the ONS. This was the fastest growth since 2011, and though the figures from 2019 aren’t in yet, a similar trend is expected for this year.
The construction sector is a bit behind in this area, with 6.5% of businesses selling via a website, compared to a third of businesses in the wholesale sector – although admittedly there is overlap between the sectors. An interesting observation from the ONS data for the construction industry is that since 2015/16, EDI sales have to some extent been replaced by website sales, as systems have become integrated and companies have opened them up to new customers.
There are some specific challenges in the construction industry, making selling online more difficult than in other sectors. These are being addressed by companies like eCommonSense, a builder’s merchant focused website & product data management solution that integrates with back office systems, providing a seamless solution.
It was another difficult year for retailers with a number of household names entering administration during the year, including the UK’s largest independent bathroom retailer, Better Bathrooms, in March, which continues to trade as an online business only, and Bathstore, the UK’s biggest bathroom specialist, which collapsed in June. Other retailers facing difficulties have included Debenhams, Karen Millen, House of Fraser and Mothercare, while Homebase has also closed many of its stores during 2019.
The challenge with online has been profitability. Online bathroom specialist Victoria Plum, for example, has seen sales increase rapidly over the past 4-5 years, but has struggled to make any significant profits. Plumbworld, which was previously owned by Grafton Group, underwent a management buyout in January this year and its chief executive, James Hickman, had this to say about the deal:
“The e-commerce consumer market is very fast moving and intensely competitive. It requires quick decision making, calculated risk taking and a ruthless focus on eliminating avoidable costs. We believe being independent will offer us greater agility and enable us to focus 100% of our efforts on delivering growth and improving profitability.”
IKEA hit the headlines last month as it reported a 10% fall in profits in the year, along with online sales growth of nearly 50%, against growth of only 0.7% in sales at established stores. And the latest figures from Kingfisher in November, showed that B&Q’s sales fell 3.5% year on year in the third quarter, while sales for Screwfix increased by 8%.
So although some bricks-and-mortar retailers in the industry have even predicted that online will ‘die out within 18 months’, the signs we continue to see indicate that distribution is definitely changing for construction and home improvement products. This change is driven by customers’ changing buying habits and preferences, it’s unlikely to be reversed, and the industry is having to adapt as a result. In some sectors businesses may need to accept lower profit margins or find other ways to add value or innovate in order to thrive.
Finally, the news in May that cmostores.com, an online distributor of building products which runs Roofing Superstore, Drainage Superstore, Insulation Superstore and Door Superstore, had joined the Builders Merchants Federation (BMF) was also a major development. Since then, Toolstation, whose business model is similar to Screwfix’s, has also joined.
The uptake of smart devices has continued to increase over the course of the year, but it has been very gradual, and our feeling is that the market is not quite there in terms of integration, yet.
To use my own experience as an example, I installed a new boiler in 2019, which came with a smart heating system that can be controlled remotely via an app, as standard. The cost to upgrade all the radiators to talk to the smart system was, however, prohibitive. I have one smart radiator, which can be remotely controlled and sends you a warning if the temperature drops below a certain limit when you’re not at home, but this does not communicate with the system that controls the boiler, and while this second app is set up to be able to control air conditioning, radio/audio systems and electronic garage doors, I can only currently use it to control that one radiator.
There’s a similar issue with smart locks – you may be able to check if it’s locked or not, but in most cases you can’t lock it remotely if it’s not and you’d like to.
Manufacturers are, however, increasingly producing integrated systems/ranges per room – in particular for the kitchen, where appliances are now more commonly fitted with technology that can integrate and be controlled via a single interface. There has been substantial year-on-year growth in the sales of Amazon Echo, Alexa and other smart hubs, which can be set up to communicate with other smart devices, when they catch up and people buy them. We now have a situation where these smart devices are looking for smart things they can do, which is a good sign for integration.
Research by Frontier Economics on behalf of Energy UK has found that the smart meter roll-out programme is likely to miss its target by some way and that installation levels will fall far short of the goal of 85%. The date for the rollout is being pushed back to 2024, but even then only up to 68% of premises are likely to have a smart meter, unless changes are introduced to require consumers to accept installations. Though it’s more than likely to miss its target, the scheme has made some significant progress and so far, over 16.5m smart meters have been installed. A new, more realistic, framework has also now been proposed.
Integration will happen, it’s just a question of when – and when it does happen, it is likely to happen quickly. In the meantime, it would be interesting to do some research to find out about the usage of smart devices for the home, and how many people control multiple functions with the same app. Just because your oven or fridge is smart enabled, it doesn’t mean that function is being used.
In terms of momentum, it seems the modular construction market got a real boost in 2019, with lots of initiatives and investment being announced, so we could say this prediction did come true. But what was the real impact? We’ve seen a number of schemes launched and projects started, but most have been surprisingly small scale.
The government has been a key driver of offsite and in November this year, announced that consultant Mark Farmer, who is well known and respected within the construction industry, would become the official champion of modern construction methods. As part of his role, he is expected to drive adoption of new construction techniques. Plans have also been announced for a ‘construction corridor’ of factories focused on MMC in the north, which would generate £40bn of output a year.
Housing minister Esther McVey has set the UK construction industry the target of becoming the world leader in modular building within 10 years. The government has also, via a £30m Homes England financing deal, partnered with Ilke Homes, a modular housebuilder formed from a joint venture between housing contractor Keepmoat and steel frame specialist Elliott, to help deliver a £100m joint venture agreement with Places for People to deliver 750 factory-built homes. Ilke Homes aims to reach a production capacity of 5,000 homes a year.
Modular also received some bad press this year, with architects criticising the drive to use modern methods of construction. Speaking at a high-level event, architect Paul Karakusevic, described the majority of Build to Rent housing, much of which uses MMC, as an “absolute abomination”, and added: “Most modular housing and volumetric construction I have witnessed in the UK is also crude, overscaled and a complete blight on the city.”
This may be the case, but it doesn’t have to be, and in Scandinavia, for example, factory produced homes are often considered attractive. Perhaps it depends on the motivation for using offsite – if the motivation is purely to cut costs in order to produce cheap housing, this situation may well continue. The division is interesting, as often architects are responsible for what buildings look like. It may be that the next step for modular/offsite needs to be getting architects on board to design buildings to please UK eyes, and to change this perception.
There have also been concerns about the quality of some of the materials used in offsite and modular building, as well as the quality of installation and lack of site control in some cases, as reported in a House of Lords report on offsite manufacture, published in July 2018. But this happens on site too, and ultimately offsite should make it easier to ensure what is produced is of a consistently high quality.
This has happened to some extent, but mainly in the larger cities. 2019 has seen the completion (and the starting) of a number of high-rise blocks, such as the Principal Tower, and there are many affordable housing developments projects in progress, particularly in London. But high-rise also got bad press, and the recent fire in Greater Manchester, and the continuing fallout from Grenfell, brought questions about this form of construction.
Modular building and high-rise building are likely to go hand in hand. Social housing has seen higher completion levels in 2019 than for many years, but activity remains low. Other areas of construction, such as hotels, student accommodation and build to rent sectors have also seen a slowdown in activity over the past year.
These tend to be driven by outside investment and many projects have been put on hold due to the uncertainty over Brexit, with Brexit also having the potential for a direct effect on student numbers in the short term, and wild election promises won’t make this uncertainty go away. The build to rent sector has been cautious as there have been talks of a tougher stance on landlords, with Labour vowing to bring in rent controls, if it wins the election.
What we had predicted though, was an increase in low-rise blocks of flats of up to 5 storeys that are suitable for smaller towns, like the development you see in much of continental Europe, but this does not appear to have happened at all. Certainly all of the housebuilding in and around the towns near where I live have been semi-detached or detached houses. This may be what people who can afford to choose want to buy, but is it what Britain needs? Either way, this is likely to continue as there are no immediate signs of any major social housing programmes or government intervention in the housing sector, and the private sector housebuilders are profit-driven.
Our general feeling is that this is something that has happened – it definitely seems to be more common to see electric vehicles on the road. The statistics also tell a clear story. While overall car registrations year-to-date in 2019 (latest figures are October) are down 2.9% on last year, registrations of battery electric cars are up 125%, according to the SMMT. Hybrid electric vehicles have also seen an increase, and the relatively new MHEV (Mild Electric Hybrid Vehicle) segment is growing particularly quickly, though its share is small overall.
What’s more, the pace of change is likely to increase next year. In 2017/18, we saw a number of manufacturers announce new production facilities, and as a result many new models are expected to come onto the market in 2020.
Manufacturers that have launched new electric models during 2019 have included Audi, Mercedes and MG, and in 2020 we can also expect the Tesla Model Y, as well as new models by General Motors, Kia, Hyundai, Audi, Porsche, while Nissan is preparing to launch a new all-electric SUV within the next three years.
The main changes during the year has been in attitudes towards electric cars and hybrids, in terms of reduced ‘range anxiety’ – the worry of running out of charge and being stranded – to some extent, and more choice. There are now many more options in terms of style and type of vehicles, and electric vehicles are also becoming more affordable.
But charging infrastructure still lags behind. There are still too few charging points around, journeys need to be planned in advance and drivers face the risk, with the increasing number of cars on the road, that all chargers are taken. Unless drivers are able to use the Tesla network or a fast charger, charging often takes too long to be practical. So it will take some further change for this anxiety to go away entirely, and while increasing number of businesses are offering full electric cars as an option for a company car, the number is still low, and most company car hybrids are running on main fuel.
There is still a lot of potential for growth in this market. Traditional diesel and petrol cars still account for 91% of registrations, with battery electric vehicles accounting for only around 1% in 2019, with the remainder made up of various types of hybrids.
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About this article
MRA Research specialises in market research and insight within construction and the UK built environment.To read the full articles on each of last years’ predictions – and to find out what data and insight we’re basing these predictions on – just follow the links below.