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Hold on to your hard hats if construction slows down next year

Richard Curran


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Continuing home-working after coronavirus could have a big impact on office construction
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Continuing home-working after coronavirus could have a big impact on office construction

Alarm bells should really go off when the head of a major building company says there will be a construction recession next year. He didn't say a recession this year, which has seen construction sites closed for weeks. He didn't say a gradual return next year as things return to normal.

Sisk chief executive Steve Bowcott is so sure construction will contract next year, he told the Sunday Independent he was just keeping an eye on how much it will contract by.

Given that Sisk has about 5,000 people working on construction sites in Ireland and employs about 800 staff directly, people will take notice - not least in government departments such as finance or enterprise.

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The construction sector never got back to contributing its disproportionate boom-era levels of employment and taxes to the Exchequer, but a recession in the sector would have implications for both.

Bowcott's prediction comes despite the Programme for Government's commitments on big infrastructure and other spending.

A slowdown in the rate of new house builds would have an impact on house prices but, equally, a sustained higher rate of unemployment would prove to be a drag on house prices.

The big question is around office buildings. A survey from the Institute of Directors found that only 12pc of business leaders think their entire staff will revert to working from the office when restrictions are lifted. One in three of those surveyed are either planning to downsize their office space or are considering it.

While this might appear to spell a sort of Armageddon for the office sector, at least for rents and valuations, it might not all be quite so bad. Only 5pc of those surveyed believe all of their staff will work remotely in the future.

Along with all other contractors, Sisk has lost time on projects because of the lockdown and, more recently, the social distancing restrictions. The company is working on projects such as the construction of Fibonacci Square on the site of the former AIB headquarters in Dublin.

The offices are being developed by Johnny Ronan and Colony Capital as part of Facebook's new campus. Hard to imagine Facebook will decide not to use the building once it has been finished.

But a downturn in construction in 2021 would affect a lot of people.

 

Airline travel reopening flies into further worldwide confusion

To fly or not to fly, that is the question this summer. Before making their minds up, people have to first decide whether to book or not. The situation around international travel this summer appears ever more confusing as different countries and airlines are taking completely different approaches.

Ryanair has said it plans to operate at 40pc capacity from mid-July. Chief executive Michael O'Leary has been out beating the marketing drum about cheapest fares ever.

But will the numbers stack up when it comes to airfares? I spoke to aviation leasing executive Domhnall Slattery recently and he was of the view that, in general, air fares will go up. If airlines are not carrying anything near full capacity on planes they will just lose money.

We were told going into the crisis that Ryanair and IAG, owner of Aer Lingus and BA, were best-placed to ride out this storm.

IAG has now announced a major strategic review of costs and isn't ruling out additional debt or a fundraising of new equity as it seek to shed thousands of jobs. Indeed, on Friday news broke that Aer Lingus was set to cut 500 jobs.

Spain will reopen to Irish tourists from next Sunday, but our two-week quarantine rules on returning will remain until at least July 9. Seats on several international European routes appeared to get snapped up quite quickly in recent weeks for July and August.

And, yes, there appeared to be some bargains around. However, according to UBS figures derived from screen-scraped fares, prices are up around 20pc overall for July and August compared with last year at Ryanair.

The approach couldn't be any more different in Australia where Qantas has had to cancel almost all of its international flights until late October, after the government there indicated its border closure was likely to extend into 2021.

Meanwhile, as Irish retailers try to return to some kind of normality, the National Transport Authority has encouraged people to only use public transport for essential journeys while the two-metre social distancing guideline remains in place.

CEO Anne Graham said that as demand grows people are occasionally being left behind at bus stops.

So, don't take the bus or Dart if you want to head off shopping for non-essentials, despite non-essential retailers being allowed to reopen. It might be essential for a retail worker to get the bus to work, but if there isn't any room on the bus for customers, he or she won't be going to work for much longer.

It shows how difficult it is proving to open up the economy, especially while the two-metre rule continues.

 

Banks brace for Covid-19 pain

Central Bank governor Gabriel Makhlouf struck an ominous note last week with his warnings about the "unprecedented" shock facing the economy and the financial sector. We know about the economic shock but there had been a narrative around the banks that it would not be easy but manageable.

Makhlouf spelled out just how serious things could become given that 80pc of businesses covering 70pc of all employment are affected either directly or indirectly by the containment measures.

The Central Bank also pointed out that half of SMEs hold less than 5pc of their annual sales in cash reserves. So with indebted businesses and indebted workers so heavily exposed to the coronavirus, naturally it feeds back into the banks that they owe money to.

With that in mind, it was strange that, in the same week, there were reports about a strong surge in the share prices of AIB and Bank of Ireland. AIB rose by 11pc and Bank of Ireland shares were up 9pc on Tuesday. It was attributed to the success of political parties in completing talks on a Programme for Government - less political uncertainty so bank share prices go up.

But a closer look at the surge shows the volumes of shares traded were tiny. AIB opened on Tuesday at €1.10 and at 5.30pm there was a one million share trade at €1.18. At Bank of Ireland the share price peaked during the day at €1.94 on a trade of just 5,485 shares. Again just at 5.30pm in the evening there was a one million share trade at €1.84. Whoever bought the stock was down money by the next day.

It was a very short surge.

Sunday Indo Business

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