Blueprint for recovery

Times have been hard for the Channel Islands" construction industry, and while the sector is by no means out of the woods, Kirsten Morel discovers a new-found air of optimism

As the recession took hold, few industries were hit as hard as the construction sector, and signs of recovery have been difficult to find both in the UK and the Channel Islands. As Martin Holmes, a Director of the Garenne Group, notes in his interview on pages 46-49, the construction industry in Jersey alone lost nine per cent of its workforce from a peak in June 2010.

Last year, however, began with a sense that things might be turning around, and while it may be going too far to say conditions did improve, Andy Fleet, Managing Director of Bridgewater Property and board member of the Jersey Construction Council, did see the first signs that things may, indeed, begin to get better.

“Early in 2013, I became convinced we were running along the bottom and that Jersey would recover during 2013,” he explains. “Job vacancies are a strong indication of recovery and companies in the finance sector were telling me they were employing again.”

For island economies dominated by the finance industry, the importance of growth in that sector can"t be underestimated, not only does it give individuals the confidence to buy property, but the companies themselves are more likely to invest in new office space.

During the recession, construction in Jersey almost ground to a halt, but in spite of lower property activity, Guernsey has done better by way of large projects.

“It"s been difficult, but through the recession we"ve invested heavily in Guernsey to the tune of £35 million,” says Steve Marie, Managing Director of property development firm, Comprop. “The spin off has had some benefits for the economy, and we"ve been encouraged by Guernsey"s planners to invest.”

Indeed, the firm has developed 70,000 sqft of offices on Glategny Esplanade in St Peter Port, and also completed 14 residential units to the rear of the same site. In 2013, Comprop began work on a residential development on the former Guernsey Brewery site and secured outline planning permission for a mixed-use development at Admiral Park and a light industrial facility on a brownfield site.

“The time it takes to get something from drawing through planning to physically working on site is two to three years,” explains Marie. “This makes it important to be optimistic. You"ve got to continue working during a recession.”

Picking up the pieces

When private sector activity declines, it falls to the public sector to fill the gaps. This is particularly important with an industry that recycles money into the wider economy with impressive efficiency. “The ratio is one-to-three,” says Jonathan Moffett, Operations Director at pan-Channel Island engineering firm T&G Group, explaining that for every pound spent by the government on the construction sector, three pounds is subsequently spent in the wider economy.

This is a message that the industry would like politicians to better understand - both from the perspective of bringing capital projects to the development phase more quickly, and in regard to appointing local contractors.

“In the public sector, not all the players understand the value. To some, it"s just about driving cost down,” Moffett continues. He points out that cost does not equal value and spending the money in the islands creates broader benefits. “We can reinvest in the community. That one-to-three helps the school leavers,” he says.

As an engineering firm, T&G"s work is focused in the early part of the development process, and this means they effectivelyt get a "heads-up" on the state of the industry. “If we had a bad year last year, it means the contractors will have a bad year next year. The first quarter of 2014 will be quite hard for contractors but there"s certainly more work coming through.”

Having spent the £44 million that was allocated for fiscal stimulus in 2009, much of it on construction projects, the States of Jersey can"t be said to have done nothing. That said, expectations remain, and the government is being urged to move forward with the projects earmarked for development in the Medium-Term Financial Plan.

The plan allocates almost £55 million for spend on capital projects that will benefit the construction industry during 2014. Of this, over £31 million is for the island"s social housing programme. However, it"s the larger potential projects that provide cause for both optimism and caution.

In Jersey this means the building of a new police station, a new hospital and a new infrastructure of roads, drainage and sewerage. Naturally, all of these projects are being welcomed by the industry, but Andy Fleet sounds a note of caution on the timing.

“The States must plan the timing of all these developments. They must not bring them all to market within a six- to 12-month period,” he says. “The local industry has the capacity to deal with these projects.”

Big builds

This uncertainty regarding the timing of public projects is being felt more keenly in Guernsey where plans appear to be even less well defined.

“We don"t have any clear markers as to what they"ll spend or when,” says Jonathan Moffett about the States of Guernsey"s spending plans.

What they do know is the Guernsey Housing Association has five sites under construction or refurbishment that will be completed this year, and another on the Longfield School Centre site expected to begin in February. Work is also continuing on the Princess Elizabeth Hospital refurbishment, with the £25 million final phase due for completion towards the end of this year.

One major project that looks set for commencement in Jersey, following many years of delays and deliberations, is the development of the International Finance Centre on St Helier"s Esplanade. One of the few blank canvas sites in St Helier, the project will see six standalone office buildings being constructed to provide up to 470,000 sqft of high quality, grade "A" office accommodation to the town"s business community. It is also intended to help attract companies from outside the island.

According to Lee Henry, Managing Director of the Jersey Development Company, the States-owned company charged with developing "properties or sites that are surplus to States" requirements", the company is hoping to begin construction of Buildings 1 and 4 of the project this year. If all goes well, planning permission on the two sites will be secured simultaneously, enabling work to start.

The project has come under fire from other developers because they perceive it as being a publicly owned body swamping the market. Henry sees it as “offering choice in the marketplace” and given how long it"s been under discussion, his view that “private sector developers have launched their schemes in the full knowledge of these developments”, holds water. But the truth is that Henry"s own figures suggest some will lose out.

“We think there"s around 400,000 sqft of demand locally in the next 10 years. In the order of one million sqft is in the planning process and not all of those will be built out.” Ultimately, it will come down to market forces, and “prospective tenants will decide”.

The importance of the JDC"s method for filling the site should not be overlooked. “We wouldn"t commence construction until pre-lets are in place,” says Henry. While politically this is an understandable position - it reduces the likelihood of buildings standing unused - it does raise the question of whether all of the six buildings will be completed, particularly given the amount of choice in accommodation that businesses in Jersey will soon have.

Just down the road from the International Finance Centre site, Comprop are working on their first major development in Jersey for a number of years. The Southampton Hotel site will see new offices and a restaurant built behind the Victorian facade of the old hotel.

Unlike the JDC site, Steve Marie explains that the offices are being built speculatively, confirming his belief in the potential of the Jersey market. “You"ve got to have the confidence to move forwards, and we"ve got confidence in both islands,” he says.

Confidence levels in the Channel Islands" property market may vary, but confidence is there, which contrasts with just two years ago when it was almost non-existent. After four years of stagnation, the construction industry is looking to 2014 with a sense of hope.