From the ground up
By CA magazine
27 January 2021
In 2020, while many industries buckled under the strain of Covid-19, construction appeared to thrive. From the revival of residential to rethinking the office, we hear the inside story from CAs working in the sector
Ever since the UK first went into lockdown, back in March 2020, a weekday stroll through the usually bustling City of London has become an unreal, discombobulating experience, with streets eerily absent of people. But it’s not a silent one: Square Mile flâneurs are still likely to hear the background roar of pneumatic drills and the clang of metal. It’s a reminder that even if the financial sector has decamped to living rooms around the world, skyscrapers continue to sprout up across our cities.
Given the difficulties endured by all in 2020, it seems Panglossian, even insensitive, to suggest a sector has prospered during the pandemic. But construction, like supermarkets, Amazon, video-conferencing apps and makers of face masks, has weathered the viral storm well. Buoyed by the completion of existing projects, construction companies jackhammered away while most of Britain sheltered at home. That, combined with a revival in residential property, meant July 2020 witnessed the industry’s strongest monthly rise in five years, according to one IHS Markit survey.
Finding the resilience to survive a crisis is nothing new for the industry. “Construction is always first into a recession and last out,” says Euan McEwan CA, Group CEO at construction consultancy Currie & Brown. “It’s a pragmatic business, because it has to be. Contractors work on wafer-thin margins with massive risks… But they always do it.”
Construction is also seen as the key to economic recovery as the world emerges from the difficulties caused by Covid-19. At home, the UK government’s “build back better” plan has promised to tackle the looming recession by increasing infrastructure spending. The International Monetary Fund recently told member governments that public investment in long-term infrastructure projects could potentially generate millions of jobs.
We speak to leading CAs in the sector about the building boom, and what it means for accountancy.
Construction under Covid
With building sites remaining open since the spring lockdown, construction has thrived in 2020. The drop in city-centre footfall has also resulted in “upgrades being easier to deliver”, according to Andrew Flood CA, Strategic Growth Director at professional services firm WSP.
The pandemic has also shown what construction is capable of achieving: see the Herculean effort assembling “emergency architecture” such as the Nightingale and Louisa Jordan hospitals, pop-up intensive-care wards, mobile morgues and drive-through testing stations within a few days. Covid-19’s legacy is likely to be permanent, says Flood, who believes “it’d be foolhardy to put up buildings in the future without keeping an eye on further pandemics”.
One answer could be the “IMMUNE” building standard recently developed in Romania, which has proposed pandemic-proofing measures for buildings, such as antimicrobial paint, hospital-quality air filtration systems and quarantine rooms where sickly staff can isolate.
Out of office
Many CAs have presented startling figures to their C-suites of late, highlighting the huge savings their businesses could achieve if they downsized, or even ditched, their offices. As Jes Staley, Chief Executive at Barclays, said: “The notion of putting 7,000 people in a building may be a thing of the past.”
Does the shift to home-working really augur the end of flagship City offices and their cloud-tickling skyscrapers? While developers are justifiably nervous about abandoned offices and falling rents, construction experts say current projects are unlikely to be terminated. “The big office towers already commissioned won’t be finished until 2025/26,” says Sarah Williams CA, Associate Director, Finance, at construction firm Mace. “What will the world look like then? Clearly many people are banking that it will look similar to 2019.”
Indeed, projects such as Google’s “landscraper” building (so-called because at 330 metres it is longer than the Shard is tall) and M&G’s “Gotham City” are still going ahead in London. Although McEwan believes some “businesses may no longer invest in city-centre new-builds”, he says this isn’t necessarily bad news for construction, as firms “will think about the office space they’ve got and do refurbishment programmes instead”. Williams notes that Mace’s fit-out division Interiors has been in strong demand in 2020 as businesses seek to reconfigure their workplaces.
“There’ll still be offices for employees to collaborate and align with the brand,” says Sandeep Kapoor CA, Innovation and Growth Director at property firm Arcadis. “People might combine home-working with three days a week at the office. Workplaces will look and feel different, with collaboration and wellbeing as the drivers: we’ll see fewer battery farm cubicles.”
This echoes recent trends, famously exemplified by Silicon Valley tech titans, to design office floorplans for serendipitous interaction, believing it will foster creative ideas, and to woo talent with office culture (Google’s landscraper will have a roof garden, 25-metre swimming pool and “nap pods”).
Next up? Automotive evolution, adding yet another place for people to work: “Driverless vehicles won’t look like cars; they’ll be moving buildings where people sit with a laptop at their desk. It’ll transform our cities,” says Kapoor.
The 15-minute city
As office workers enjoy the commute-free joys of home-working, the argument for the “15-minute city” concept has hastened. Developed by French-Colombian professor, Carlos Moreno, the 15-minute city centres on the idea that everything a city-dweller might need (groceries, parks, health centres, work) exists within a quarter-hour walk or cycle of their doorstep. By reducing dependence on cars, it’s hoped the self-sufficient communities could cut pollution.
The 15-minute city was a key pillar of Paris Mayor Anne Hidalgo’s re-election campaign last summer, but it could also rejuvenate the ailing high street. Online retail has hit bricks-and-mortar stores in recent years, a trend greatly accelerated by the pandemic. But Kapoor says Moreno’s idea could “reinvent local town centres based on citizens’ needs”, adding “we could see some retail [converted] into residential”, an idea also mooted by the Social Market Foundation which claims this could create 800,000 homes.
Residential revival
The events of last year forced many people to reassess their living arrangements. As Kapoor says, “The traditional, high-value, easy-sell two-bedroom flat is now three-bedrooms with a garden.” Aided by the stamp duty and LBTT holidays – which saw the tax suspended on properties up to £500,000 – house prices hit a six-year high at the end of 2020, while the triumvirate presiding over British housebuilding (Barratt, Persimmon, Taylor Wimpey) all reported a surge in sales and higher profit expectations.
The boom has been supported by the government’s “build back better” campaign, which has pledged to build 300,000 houses a year in England among some of the most radical reforms to planning seen in the UK since World War II. Yet, the construction sector is also fearful the upswing could flatten out when the stamp duty holiday ends in March 2021. Indeed, the Office for Budget Responsibility recently forecast property values could fall by 21% by Q3 2021 with predicted unemployment forcing first-time buyers to tighten purse strings.
Grenfell: has it changed anything?
The 2017 Grenfell disaster, in which 72 people lost their lives when the building’s combustible cladding caught fire, exposed the disregard for safety in some areas of the industry. In December 2020, the Grenfell Tower inquiry found that cladding manufacturers had faked fire tests, as well as misleading customers and regulators.
But has the construction industry learned anything? Although Kapoor notes “the massive focus for housing organisations and developers to improve their fire risk and safety audit procedures”, a 2019 review by barrister Stephanie Barwise found that a lack of cavity barriers in some of Persimmon’s homes posed an “intolerable risk” in the event of fire.
McEwan hopes tougher regulation and a shift in mindset will follow. “I think [Grenfell] has made clients adopt a more holistic approach towards buildings,” he says. “Rather than the tick-box mentality of ‘I need to build this’, they’ll look at operating and caring for the building over its lifetime, such as accountability on points of control, and annual mandatory testing. If you look at any construction company that performs well, it’s because they do the basics, not just once, but every day of the week, as boring as that can be. Sadly, it’s still not being done.”
Greening the sector
Construction and sustainability don’t make obvious bedfellows. Globally, buildings emit more energy-related CO2 than transport (28% and 22% respectively), while construction is the second-largest producer of plastic waste in the UK (after packaging). Still, construction experts claim there is progress. Flood points out the commitments made to net-zero steel (steel produced with no emissions, which he believes is “set to revolutionise the construction industry”), and new technologies such as the recycled plastic roads developed by Dutch engineering firm KWS. “Think of it as recycled plastic underneath our wheels,” he says. “It’s quick to install, has triple the durability of asphalt and helps to recycle the plastics that damage our oceans.”
In September, the government introduced a £3bn green homes grant to retrofit UK houses. By installing, say, a heat pump to replace a gas boiler, it’s hoped the upgrades will reduce emissions – but many builders have failed to sign up. Another stumbling block is the UK’s aged architecture. New homes might be more energy efficient, but 80% of 2050’s buildings have already been built, according to the Green Building Council. “The biggest challenge is dealing with [those buildings] that are already standing,” says Flood.
With the UK government setting a target of two million “green-collar jobs” by 2030, accountancy looks set to play an important role. “There’s a greater trend towards non-financial KPIs such as reporting on carbon emissions as part of statutory reporting,” says Williams.
“As CAs, our skills have traditionally been focused on the financial bottom line,” adds Kapoor. “But numerical analysis, quantification, monitoring and reporting can also apply to green economy targets, which is the right thing to do.”
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