Building's Review of the Year 2008

Wonderful is not the word you would use to describe life in the construction industry in 2008. It is hard to see the good things when everything around you is imploding (the economy), stagnating (the property market) and plummeting (housebuilders’ share prices). In the 12 months to November, 71,000 construction jobs had been lost in the UK and even the industry’s safe haven of Dubai suffered the effects of the global downturn. Clarence, the guardian angel in It’s a Wonderful Life, would no doubt point to all the achievements that couldn’t have taken place without a world-class industry capable of delivering breathtaking architecture and projects on the scale of Heathrow Terminal 5, so to alleviate the depression, we try to do something similar (see box below). But first for something a little less feelgood …

Misery

It could be argued that the year really began four months earlier than usual. Northern Rock’s bail out by the government last September announced the arrival of the credit crunch on this side of the Atlantic, and a sense of impending doom was hanging over the industry long before the new year. By January, the Construction Products Association had downgraded its growth predictions for the year to a quaintly optimistic 1.1%, Gladedale had closed two offices and fellow housebuilders Taylor Wimpey and Charles Church were frantically writing to suppliers asking for a 5% discount on all orders. Little wonder that Building declared on its cover on 25 January that the slump of 2008 would be housebuilders’ biggest test for 15 years.

That was soon beginning to look like an understatement. In February, Persimmon slashed 300 jobs – an act that was to be replicated with unnerving regularity as the year went on – the NHBC revealed that house sales had fallen 36% from the previous year and the near collapse of US bank Bear Stearns was a nasty indication that the US sub-prime mortgage crisis had far from run its course.

It was clearly a poor time to put your money where your mouth was, so instead Building took the opportunity to invest £100 imaginary pounds in shares in a selection of housebuilders and contractors. It’s just as well they were imaginary: by the start of May, our £100 investment in Barratt was worth £68. Meanwhile, Persimmon had stopped work on new sites because sales were so poor, Taylor Wimpey had stopped buying land, mortgage lenders were continuing to cut products, Tony Pidgley, the Berkeley Group chief executive who acquired the aura of a prophet after predicting the last crash, was declaring the downturn “worse than the recession of the early nineties”, and nobody was talking about the government’s plans to build 2 million houses by 2012 any more. Unfortunately, things were about to get worse.

The summer brought little respite from the gloom. As the boss of one volume housebuilder put it: “It’s shit out there and getting shittier by the day and there’s no sign of when the shit is going to lift.” In July Barratt announced a rescue deal with its banks that saved it from collapsing under its £1.7bn debt pile, but in the same month Taylor Wimpey admitted that its £500m rights issue had fallen flat on its face.

The retail sector complained of weakening sales, fit-out specialist Styles & Wood announced 45 job cuts and contractors were fearing the double squeeze: falling demand coupled with rising material prices.

In August, Building revealed that Taylor Wimpey was circulating the sale documents for construction division Taylor Woodrow. The company had been in talks with eventual buyer Vinci since February. Meanwhile, Bernie Horn of US company Polaris Asset Management berated the markets for the hysteria and panic that had broken out in relation to housebuilders, little knowing that the panic was about to reach a whole new level.

The collapse of Lehman Brothers in September and the subsequent prolific short-selling of UK financial stocks threw the economy into turmoil. Housebuilders’ shares nosedived yet again, with Barratt losing 20% of its value in a week and Taylor Wimpey losing 26%. Amid the mayhem, Redrow became the second large housebuilder after Barratt to get a refinancing deal done – and Bellway managed to find enough spare cash to award its boss a £275,000 bonus.

And so we came, bloodied and battered to the end of the year. The total amount of work won by UK contractors in November was half the figure it was at the same point in 2007, while housing starts had fallen to their lowest level since 1924. And as for those notional £100 investments … by mid-December, our holding in Taylor Wimpey was worth £6.

Notes on a scandal

On 17 April, contractors awoke to the news that 112 firms had been formally accused by the Office of Fair Trading of bid-rigging activities. Public sector clients and local authorities began looking through their frameworks for named companies as trade bodies and lawyers rushed to insist that the accusations were unproven.

The investigation has rumbled along ever since, but been dwarfed in most people’s minds by the parlous state of the economy. The OFT has promised to levy fines in the new year, and these may be as much as 10% of the guilty companies’ global turnover.

The departed

2008 was notable, sadly, for a number of departures:

• In February, Hills Electrical & Mechanical was snapped up by rival Southern Electric Contracting for £1.

Property services company Erinaceous and housebuilder Consort Homes went into administration in April, followed by developer City Lofts in July and David McLean Homes in October. In November, a shoal of small contractors went under, including Pettifer Construction, York House Construction, Linpave and two parts of the Robin Ellis Group.

• High-profile personalities to make an exit included Murray Coleman, Bovis Lend Lease’s UK chief executive, who returned to Australia, Vaughan Burnand, Shepherd Construction’s chief executive, and David Ross, who quit as Olympic adviser to Boris Johnson.

• The political merry-go-round continued: Baroness Vadera arrived and departed as construction minister, to be replaced by Ian Pearson. Margaret Beckett stepped into Caroline Flint’s shoes as housing minister.

Love story

It was a quieter year for consolidations, but there were a few notable unions:

• Alfred McAlpine was bought by Carillion for £574m in February

• Balfour Beatty bought Dean & Dyball for £45m in March

• Bullock was bought by Lloyds Development Capital for £100m, and Rok bought Richardson Projects for £41m, in April

• French energy supplier EDF bought British Energy for £12.5bn in September after months of negotiations, thereby paving the way for a new generation of nuclear power stations

• French contracting colossus Vinci picked up Taylor Woodrow for the bargain price of £74m, also in September

Some like it hot

It is a truth universally acknowledged that an Arab sheikh in possession of a good fortune must be in want of a UK project team to build him a mile-high pleasure palace. And so it was that with life getting progressively harder in the UK, everyone – from consultants to architects to contractors – was heading to the UAE in the hope of picking up a lucrative job or two in the land the crunch forgot.

It helps that the projects are remarkable, too: the Burj Dubai (pictured) passed the 700m mark, and we managed to sneak on site for a look round in November. Projects in the pipeline are no less ambitious. If it is built, the 1.4km Nakheel Tower in Dubai will dwarf the Burj, and Abu Dhabi has some £280bn to spend on creating four new districts by 2030 – a task only marginally less ambitious than turning Manchester City into a Champions League-winning team.

But it seems that nowhere is safe from the downturn. In November Building reported that the property market in Dubai was cooling and projects such as Atkins’ £430m Executive Towers and Dubai Property’s £9bn Culture Village had been put on hold. All is not lost, however, as those wanting to chase up work abroad can still look to Abu Dhabi, Saudi Arabia, Bahrain, Qatar and Oman, which remain buoyant. For now, at least.

Village of the damned

As the financial gloom deepened, the Beijing Olympics in August brought a ray of light. Building went out to China in the lead up to the Games to see how the venues were progressing and was suitably impressed.

The same could not be said for London … The government struggled for the best part of the year to work out a deal with developer Lend Lease for the £1bn athletes’ village before the Olympic Delivery Authority admitted the company could not raise funding. Building revealed at the start of December that housing association Southern Housing Group was being brought in to help develop the affordable homes element of the village, in a move designed to pave the way for the deal with Lend Lease. But Olympics minister Tessa Jowell indicated that the ODA would probably have to draw on its contingency fund. She said: “ I don't think the use of the fund should be seen as any kind of failure.” Hmmm.

Sweet and lowdown

Developer Candy & Candy proved that being one of the flashest kids on the block doesn’t make you immune to the crunch. In October the group was forced to quit its role as development manager on the £300m Noho Square project in central London. It emerged later in the year that the brothers Candy were having to sell their second yacht, Candyscape 2 and cancel their annual staff ski trip. Tough times indeed.

Superman

On 4 November, the US got just a little bit cooler when Barack Obama was elected. Amid the campaign trail hysteria, Building took the opportunity to visit New York – at appropriately breakneck speed. We reported from Wall Street the day the $700bn bail-out package was rejected, toured the Ground Zero site to find out exactly why it’s taking so long for anything to happen, and caught up with real estate giant Donald Trump.

Legally blonde

Boris Johnson’s election as London mayor on 1 May was not the architectural disaster some assumed it would be. Despite hiring noted architectural curmudgeon Sir Simon Milton as planning adviser, Johnson surprised everyone by giving some controversial projects, such as Lifschutz Davidson Sandilands’ Doon Street tower, the green light. The shaggy-haired, Latin-speaking Tory spoke at the launch of the London Festival of Architecture on the “genius” of the capital’s architecture, which didn’t stop him scrapping the 100 Green Spaces programme and other public realm improvements.

The good, the bad and the ugly

Few people had more ups and downs this year than Rafael Viñoly. First, the US architect’s Walkie Talkie tower in the City of London was slated, then pretty well everyone laid into plans for a giant plastic chimney at Battersea. Next, the news broke that the money had run out for the Colchester visual arts facility and the contractors had walked off site. But Viñoly was on form with his Curve theatre in Leicester (pictured), which has played to rave, if not completely uncritical, reviews.

2008 online: The most read web stories of the year

• OFT accuses 112 construction firms of rigging bids (April)

• QSs to axe hundreds of staff to save cash (October)

• UAE unveils Abu Dhabi masterplan (May)

• Travelodge to build hotel with shipping containers (January)

• World’s first revolving tower set for Dubai (June)

• Foster’s Beijing airport opens (February)

• Barratt axes 1,000 staff (July)

• David McLean goes into administration (October)

• Bonus bonanza for Wolseley bosses (October)

• Pettifer Construction in administration after bank pulls credit (November)