UK Construction Market Report 2Q 2023
Hot topics
Climate emergency/retrofitting
The government recently launched its Powering Up Britain energy strategy. As well as outlining plans to diversify, decarbonise and domesticate energy production with investment in renewables and nuclear, it also highlights the importance in reducing reliance on fossil fuels to heat buildings, increasing energy efficiency and decarbonising transport.
In addition to delivering on net zero commitments and supporting the transition away from fossil fuels, the strategy also intends to set a path to greater energy independence, affordable energy pricing, economic growth and job creation.
Reducing reliance on fossil fuels to heat buildings
The government aspires to phase out new and replacement gas boilers by 2035 at the latest, incentivising gas boiler replacement with heat pumps through the extension of the Boiler Upgrade Scheme. It says that the Heat Pump Investment Accelerator will enable domestically manufactured heat pumps on a large scale.
There is concern from some groups over the speed of take-up of heat pumps. The BBC highlighted in February that the House of Lords Climate Change Committee has said that adoption of the Boiler Upgrade Scheme grant is so low that the national target of 600,000 heat pumps installed annually within five years is “very unlikely to be met”.
The Guardian reported similar troubles for the scheme: Ofgem figures show that just under 12,000 (11,996) £5,000 vouchers were issued out of the 30,000 available for the 2022/23 financial year. The House of Lords Climate Change Committee blamed “very limited public awareness”, “inadequate” promotion of the scheme, a shortage of installers and “insufficient independent advice”.
Octopus Energy boasts a waiting list of 50,000 interested households and is training heat pump installers at UK bases to help meet demand. It has invested in a Northern Ireland-based heat pump manufacturer, Renewable Energy Devices, to produce circa 1,000 pumps every month.
Although the European Heat Pump Association says that the UK sold the fewest heat pumps relative to population size in Europe last year, Octopus Energy says that take-up is becoming faster and that scale and demand will help to reduce the cost and quicken the pace. Eventually, it is hoped that a government grant will not be needed as buying and running a heat pump will be cheaper than a gas boiler.
Increasing energy efficiency of buildings
The Powering Up Britain strategy also outlines plans for a new Energy Company Obligation scheme, the Great British Insulation Scheme, to extend help to a wider group of households with a £1 billion energy efficiency programme for approximately 300,000 of the country’s least energy-efficient homes by 2026.
The government is also implementing regulations to improve domestic and non-domestic private rented property, via the Domestic Minimum Energy Efficiency Standard (MEES) Regulations and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.
The overall target for England and Wales is for privately rented homes to be upgraded to EPC band C and all non-domestic buildings to achieve an EPC rating of B by 1 April 2030 in England and Wales for existing and new leases, unless an exemption is registered.
The government has given further advice for domestic properties, setting out recommended measures, an indicative cost and typical savings per year and a rating after improvement. It also outlines possible exemptions, such as ‘all relevant improvements made’ or ‘high cost’.
Gleeds is seeing increased numbers of retrofit projects in response to the regulations, but also market expectations.
Five considerations for retrofit projects:
1) Timing
How do the works fit in with the building’s lifecycle?
There will likely be existing planned maintenance and refurbishment periods. Can the works be planned around these for efficiency and also to minimise the embodied carbon impact of interventions?
2) Phasing
Should improvements be made incrementally or be undertaken in one go?
Undertaking works in one phase will save remobilisation costs and would limit disruption to one defined period. However, tackling enhancements in phases could help to keep a building live and may enable the project to benefit from technological advancements/cost savings as techniques become more widely adopted.
3) Communication
Are there any stakeholders to consider?
Are there any existing tenants to engage with? Or any future tenants that can be integrated into plans? We have seen schemes incorporating energy efficiency improvements as part of refreshes or running in parallel with tenant fit-out works.
4) Grants and capital allowances
Can the investment benefit from any incentives?
As mentioned above, the government is planning financial support and incentives to help with encouraging individuals and businesses to improve building performance.
The spring budget also saw the government announce full expensing for companies investing in plant and machinery from 1 April 2023 until 31 March 2026, meaning that companies can claim a 100% first-year allowance for main rate expenditure and a 50% first-year allowance for special rate expenditure.
5) Maximising carbon and cost savings
How can we save carbon without putting pressure on the budget?
Gleeds is developing Decarbonise which allows the assessment of embodied carbon alongside cost from an early design stage. This enables decision making and optimisation of design throughout the project, rather than needing to wait for developed design.
3) Communication
4) Grants and capital allowances
5) Maximising carbon and cost savings
Are there any stakeholders to consider?
Are there any existing tenants to engage with? Or any future tenants that can be integrated into plans? We have seen schemes incorporating energy efficiency improvements as part of refreshes or running in parallel with tenant fit-out works.
Can the investment benefit from any incentives?
As mentioned above, the government is planning financial support and incentives to help with encouraging individuals and businesses to improve building performance.
The spring budget also saw the government announce full expensing for companies investing in plant and machinery from 1 April 2023 until 31 March 2026, meaning that companies can claim a 100% first-year allowance for main rate expenditure and a 50% first-year allowance for special rate expenditure.
How can we save carbon without putting pressure on the budget?
Gleeds is developing Decarbonise which allows the assessment of embodied carbon alongside cost from an early design stage. This enables decision making and optimisation of design throughout the project, rather than needing to wait for developed design.
April marks the first month of formalised activities by the Building Safety Regulator (BSR), an independent body established by the Building Safety Act 2022, which is part of the Health and Safety Executive (HSE).
Led by Chief Inspector of Buildings, Peter Baker, the BSR will raise building safety and performance standards, oversee a new stringent regime for high-rise residential buildings, as well as supervise the wider system for regulating the safety and performance of all buildings.
A three-stage Gateway approval system ensures the consideration of building safety risks at each stage of the design, construction, completion and occupation of a higher-risk building. This will assure that the scheme complies with Building Safety Regulations and helps support the requirements to produce and update a golden thread of information.
Tackling poor design for high-rise residential buildings from the outset of the project's lifecycle is a direct response to Dame Judith Hackitt’s recommendations in her ‘Building a Safer Future’ report, published in 2018. The BSR will have a duty to challenge the safety of a building and will be able to intervene in any lack of safety assurance.
The window for the mandatory registration of high-rise residential buildings (18 metres/seven storeys tall or higher) opened on 6 April 2023 (digital portal 12 April).
With over 12,500 existing buildings, owners must complete the registration process by 1 October 2023 and failure to do so within the timescale is a criminal offence.
There will be six months of transitional arrangements:
- If an initial notice or full plans are not deposited before this date (estimated October 2023), the full requirements of the new regime will apply (including building control/construction phase/occupation phase)
- If the initial notice or full plans are deposited before the new regime comes into force and:
- Work commenced within six months of the regime coming into force; the existing building control regime and the new occupational phase regime (registration/safety case, etc.) will apply
- Work commenced between six months of the new regime coming into force and three years of the initial notice or full plans being deposited, the building will transfer from existing building control regime to a hybrid version of the new regime and the new occupation regime will apply
- Work not commenced within three years of the initial notice or full plans being deposited, building control approval will lapse and a new application under the new regime will be required.
Gateways two and three (building control and construction phase requirements) will likely be effective from October 2023.
Second staircases in tall residential buildings
At the end of 2022, the Department for Levelling Up, Housing and Communities (DLUHC) issued a 12-week consultation paper proposing amendments to Approved Document B of the Building Safety Regulations. One of the changes is the need for a second staircase in new blocks above 30 metres in height (circa 10 storeys).
The industry is keen for clarity on the issue. On 10 February, the Greater London Authority pre-empted the government’s plans by mandating with immediate effect that all new residential buildings in London over 30 metres tall would need two staircases.
Some are concerned about the impact of redesign for schemes which are part-way through design. Building Magazine highlighted unease from Peabody Housing Association of a “dramatic impact” on its development programme due to uncertainty over policy.
There are also questions about the impact on viability due to increased costs and a drop in saleable area. This would lead to greater footprints and may also mean that developments are kept below the threshold or built significantly higher to compensate for rising costs. There could also be an impact on the amount of affordable housing provided.
Others highlight that additional fire safety measures also play a vital role in safety, concerned there may be less attention to detail in those areas.
The National Fire Chiefs Council argues that second staircases should be mandatory in buildings above 18 metres, receiving backing from others in the industry, including the Chartered Institute of Housing. A lower threshold would create consistency across the UK, as Scottish Building Regulations require at least two escape staircases in buildings over 18 metres.
Arguments for the lower height threshold include the risk of compromised safety components, which may make it necessary to move from a ‘stay put’ policy to an emergency evacuation during a fire. A second staircase would provide a second means of escape if one route filled with smoke. London Fire Brigade data also shows that nearly 8,500 residents chose to evacuate buildings rather than staying put between 1 April 2019 and 31 March 2022.
Dora House Lodge Road, London — Gleeds provided Quality Management/Quality Inspections/Technical Due Diligence services
Artificial intelligence and data
Although the construction industry is characterised as slow to change and innovate, there has been increased digitalisation in recent years, with companies using project data analytics, robotics, generative design and the like to improve efficiency and performance.
Released on 14 March 2023, GTP-4, the newest OpenAI model (now Microsoft-funded), created worldwide buzz and excitement. It builds on ChatGPT, which millions have used since its launch in November 2022. ChatGPT and GPT-4 are types of generative, natural language processing, artificial intelligence (AI) that use algorithms and predictive text to create new content based on prompts.
The new model can respond to images as well as write captions and descriptions. It can also process up to 25,000 words. A recent BBC article highlights that GPT-4 is powering Microsoft’s Bing search engine platform, following a $10 billion investment into OpenAI.
The next iteration is already in development and Auto-GPT has just been released. Google have recently followed suit with the released of Bard based on their LaMDA large language model and expect others to join the market in the months to come.
Auto-GPT is an experimental open-source application that uses GPT-4 to autonomously break down a goal into sub-tasks and complete them using the internet and other tools. It is able to execute responses to prompts to accomplish a goal task, and in doing so will create and revise its own prompts to recursive instances in response to new information.
AI-generated art is another advance that uses art created by AI programs which use deep learning to replicate from a massive dataset of human-created art. Some examples of AI-generated art include DALL-E 2, Imagen, Midjourney and Parti.
But what opportunity does this technology present for construction?
In our survey, 61% of contractor respondents and 52% of non-contractor respondents thought that AI would impact their role in the future. Many commented that AI can help to increase productivity and enable concentration on analysis and added-value.
It was evident in the responses that people see AI working alongside them in their role rather than entirely replacing them. Some raised concerns over a lack of understanding of data and the limited testing of AI in construction so far.
Nearly 30% of survey respondents said that they have used ChatGPT or another AI tool to support a workplace activity. A further 17% said that they have used one for personal reasons.
We expect the use of tools to grow as awareness continues to increase. AI is essential to overcome challenges faced by the construction industry.
Gleeds is preparing its staff for the future of construction through Upskill, our Gleeds Data Academy. There are courses for different skill levels and which are suitable for all career points, with varying degrees of time commitment. There is something for everyone, from project delivery specialists to leadership: As we step into the age of AI, Gleeds is focused on building data capability so that we can derive more value for clients.
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