Belfast Telegraph

Wednesday 20 August 2014

Building a new future: Boldness needed in Northern Ireland construction sector

With the outlook for the construction sector looking brighter, now is the time for boldness

The construction sector in Northern Ireland is 'the bear, waking up, and starting to emerge from hibernation. It's starting to go out foraging'
The construction sector in Northern Ireland is 'the bear, waking up, and starting to emerge from hibernation. It's starting to go out foraging'

Attempting to re-evaluate what had been a seemingly perpetually declining construction sector in Northern Ireland isn't easy.

"It's the bear, waking up, and starting to emerge from hibernation. It's starting to go out foraging", says economist Neil Gibson.

The now head of the Northern Ireland Centre for Economic Policy doesn't want to paint a picture of an ailing industry on the mend, with construction in the region still lagging behind the rest of the UK.

The industry suffered severely, along with almost all of Northern Ireland's economic sectors, in the past six or seven years.

And it was the hardest hit.

The industry was in free fall from 2007, with property prices collapsing beyond all modern recognition.

But those within the industry -- alongside the latest business indexes -- point to a bottoming out of construction and a marginal rise in property prices, with firms and individuals alike hoping we have already reached an absolute low with only one place to look -- and that's up.

In the last few weeks, business surveys have shown a rise in economic activity across the majority of sectors -- prompting cautious optimism among economists and analysts as to Northern Ireland's financial recovery.

"In 2013 there has been a strong sense that the construction industry in Northern Ireland has finally reached the bottom," said John Armstrong, managing director of the Construction Employers' Federation.

"Market conditions are still extremely tough, but for the first time in six years workloads have stabilised and are expected to hold up over the next 12 months."

Construction has also been seen as a litmus test to an overall improving outlook -- deemed "the biggest, single, tangible example of what recovery will look like".

The latest headline to boost confidence in business building came with the announcement of a potential 2,000 jobs being created in Belfast's burgeoning Titanic Quarter.

Plans for a £20m office were unveiled -- theoretically making it one of the biggest commercial developments in the city since the start of the downturn.

"What it shows is that the private sector may be coming back to the table," said Neil Gibson.

"However, industrial building is still quite slow -- keep in mind we haven't exactly had huge amounts of economic activity in the last 10 years."

Many of the region's firms are still relying on business across the Irish Sea and beyond to keep them buoyant during lean times.

"Many companies are working outside Northern Ireland and are in a good position to take advantage of improved economic circumstances," said John Armstrong.

"However, annual construction output in Northern Ireland is now, in real terms, over £1bn lower than it was at the turn of the century." The collapse of the family-run Patton Group -- a firm which had been operating for a century -- showed just how vulnerable some of the industry's local giants could be.

And, of course an enterprise of that size had a knock-on effect -- with a host of sub- contractors suffering as a result of the company going under.

It followed the loss of fellow old-timer the Carvill Group, which entered administration in 2011.

However, some of Northern Ireland's biggest names in construction have managed to weather the storm -- including Olympic builders H&J Martin and Lagan Construction.

But despite surviving the past seven year lull, neither wanted to comment on how they had dealt with the slump, along with their own plans for the future.

"It has been a very painful time," said Mr Gibson. "It will certainly be a slow road to recovery.

"Aside from large firms, small companies can begin picking up work, such as fixing, building and improving properties whose owners haven't done any work in recent years."

The latest Ulster Bank Northern Ireland purchasing managers' index highlighted the region's businesses experienced their best month since 2007.

Yet another survey indicated that prices within the housing market were in fact rising -- following on from government data which which reported a 2% rise in average costs across all types of property between April and June this year.

"Having fallen fastest and furthest, private house building is already on the mend," said Mr Armstrong.

"Completions in 2012/13 were up on the previous year and houses are selling again.

"House prices are now affordable and buyers want to get on the housing ladder now before prices start rising again."

However, despite this, there are still concerns surrounding construction spending in the public sector -- accounting for around half of the industry.

"This is due to the reallocation of capital funding back to revenue funding and the lack of project delivery on the ground."

So, what is the outlook for construction as a whole, and what can firms do to ensure they can improve their balance sheets?

"The future for the local construction industry is looking brighter. It will be a long and difficult road to recovery," said Mr Armstrong.

"Whether or not there are more casualties along that journey will very much depend on the approach of the banks."

And, with a glimmer of hope at a bottoming-out within the sector along with a marginal boost in house prices, companies should not be holding back, -- according to former director at Oxford Economics Mr Gibson.

"As difficult as it may seem, it's a time to be brave," he said.

"Firms can't hold back and be overly cautious. With less companies around, those who are still in the market cannot hold back."

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