Davis Langdon Review 2012

52
REVIEW Davis Langdon Ireland Annual Review 2012

description

In this its 37th year, we look at the medium term outlook for the industry as a whole, key industry, sector, and regional developments, as well as developments on the international stage. We are happy to report some initial signs of stabilisation in the industry but also demonstrate that the industry is operating at wholly unsustainable levels in terms of output

Transcript of Davis Langdon Review 2012

Page 1: Davis Langdon Review 2012

REVIEWDavis Langdon Ireland Annual Review 2012

Page 2: Davis Langdon Review 2012

AECOM’s global capabilities:

ArchitectureBuilding EngineeringConstruction ServicesDesign + PlanningEconomicsEnergyEnvironmentGovernmentMiningOil + GasProgram, Cost, ConsultancyProgram ManagementTransportationWater

With approximately 45,000 employees around the world, AECOM serves clients in more than 130 countries.

Page 3: Davis Langdon Review 2012

INTRODUCTION 1 OVERVIEW 2

Medium Term Outlook

Construction Costs & Tender Prices

Where now for the Public Sector?

NAMA: Is the bottom line everything?

SECTOR DEVELOPMENTS 8

Public

Commercial

Retail

Residential

Hotels, Sports & Culture

Infrastructure & Industry

INDUSTRY DEVELOPMENTS 14

Alternative Funding Sources for the

Property Industry

Work Outs by Asset Managers

Repair & Maintenance

Abnormally Low Tenders

BUSINESS INTELLIGENCE 20

Pat Gunne, Green Property

Bill Nowlan, W.K. Nowlan

Maurice Mortell, Telecity

Donal Murphy, Bank of Ireland

GEOGRAPHIES 26

Island of Ireland

UK

Global Markets

TECHNICAL DATA 38

Indicative Building Costs

Performance Bond Checklist

Project Planning Checklist

Development Budget Driver

DAVIS LANGDON NEWS 44

Promotions

Public Sector Workshop

Examples of Recently Completed Projects

DAVIS LANGDON PEOPLE 46

Contents

Page 4: Davis Langdon Review 2012

Introduction | 1

Paul Mitchell DirectorHead of Office – Ireland

We are delighted to welcome you to this year’s Annual Review of the construction industry. We have included a wide range of commentary and analysis on the Irish construction industry, looking at each of the sectors and recent industry developments, plus our colleagues give an update on what’s happening in the global markets. We have also included a business intelligence section which features a number of interviews with prominent industry figures who give us their thoughts on their sectors and areas of expertise.

Whilst on a global level construction output is stable, if somewhat stagnated in the short term, our domestic market has continued its decline albeit at a slower rate. Our estimate of construction output for 2012 is €7.75 billion, down 9% on last year compared to a reduction of 27% the previous year. So, the good news is that the contraction is slowing; the bad news is that the market is operating at a completely unsustainable level. In our overview section we show, even with an optimistic 15% year-on-year growth from 2014, it could take until 2020 to reach the optimum level of output required for a proper functioning industry.

In last year’s review we called for leadership from the Government in terms of supporting the construction industry and acknowledging the crucial role that the construction sector plays in the economy. We were not alone in our call but apart from some behind-the-scene meetings and various gestures, there has been little or no action. It would appear that the construction sector continues to be viewed in the negative context of the property industry and somehow seen

as getting its just comeuppance for the fallout of the boom. We currently have an industry that has had 50% of its top ten contractors become insolvent since 2007, some remaining contractors choosing not to bid for certain public work due to the cost of procurement and risks associated with the public works contract (even in this market!) and ongoing sub-contractor insolvency/ liquidity issues. Consultancy practices are experiencing similar difficulties. Some ideas that the Government could consider include:

The easy wins:- Introduce Procurement Passports- Review handcuffs of Circular 10/10- Procure projects with committed funding- Alter award criteria to deter below cost tenders

More difficult but achievable:- Prioritise labour intensive projects- Deliver the capital programme- Review the Capital Works Management Framework (CWMF) by including partnering type contract.- Bring the Real Estate Investments Trust (REIT) legislation into law Leadership required;- Stimulus Package, e.g. healthcare focused- Encourage Pension Funds into market, e.g. Student Accommodation, Social housing- Promote Qualifying Investor Funds (QIF’s) in funding property & construction programmes, e.g. primary care centres- Consider Project Bonds to deliver infrastructure, e.g. Broadband and Power- Engage with the Professional Bodies to generate workable solutions

Some of the ideas or concepts mentioned above are tried and trusted mechanisms used in the delivery of projects in other jurisdictions and solve a real need in delivering critical infrastructure. We need a champion at the highest levels within government who will work towards delivering a sustainable construction industry.

On the brighter side we have seen the positive effects of the Foreign Direct Investment secured by the Industrial Development Agency (IDA) Ireland, etc. Also, the recent announcement by National Asset Management Agency (NAMA) to inject €2 billion into construction over a four year period to complete construction projects and address the shortfall in supply of appropriate space is extremely welcome. This represents a 6% per annum (p.a.) increase in construction output if it is delivered. We have also seen some of the large funds enter the market with purchases such as One Warrington Place which is a real sign of confidence and stability.

We hope you enjoy the read and would like to take this opportunity to thank all our clients and colleagues for your continued support during the year and look forward to providing more business solutions to you in the coming year.

Paul Mitchell

Director, Head of Office – [email protected]

Introduction

Page 5: Davis Langdon Review 2012

Overview

ConsultantsConsultants

The Model Arts and Niland Gallery, Sligo.(image courtesy of Paul Tierney Photography)

Page 6: Davis Langdon Review 2012

The last 12 months have certainly been less “eventful” than the previous couple of years in terms of economic shocks and financial upheavals. The fact that we haven’t had any further significant banking debt added to the already seismic burden or had the need to introduce mini-budgets mid-year could be seen as a sense of stability returning to the economy — if you take the glass half full approach to economics. Certainly we feel that it is imperative that everyone takes the glass half full approach, however, always remaining mindful of the baseline we are measuring against. That baseline has been tracking very low since the sheer drop experienced in 2008 and the aftershocks of the financial crisis continue to dominate the framing of the Exchequer budgets and domestic demand generally.

In addition, as a small open economy, we are significantly impacted by activity levels in foreign markets and in particular Europe. The last 12 months have been plagued by the never ending string of crisis summits at the European level which have further unsettled confidence, notwithstanding the weakening of the Euro having some positive impacts in terms of making our exports more competitive in global markets.

Medium Term Outlook Of course what happened yesterday is of relatively little importance compared to what happens tomorrow. In this regard the publication of the public capital expenditure plans in the annual budget is always keenly awaited. As has been the trend for the last number of years, the December 2011 Budget included a multi-annual Public Capital Programme (PCP) extending out to 2016 (see Table 1).

Unfortunately, the past experience of such multi-annual capital programmes has been their propensity to vary radically as opposed to their reliability in terms of not changing. Of course this very characteristic of change could be used as precedent to instigate positive change to the “programme” laid out for the next three years. The PCP for 2013 represents a further 14% reduction (in value terms) on that approved for 2012 and this would further reduce output in the construction industry below

levels which are unsustainable even in the short term. We believe there is an urgent need to re-visit the strategy in this regard and as we highlight in the following opinion piece the economy needs an increase in investment in social and productive infrastructure to provide both increased attractiveness to business and to act as a stimulus to general economic growth levels which are struggling to stay out of recession territory.

The construction industry has been existing on a virtual treadmill for the last four years with the result that whilst we have not progressed, everyone still standing is leaner and fitter. The reality is that the race is probably only half run, and with the passing of the fiscal compact in the medium term the requirements of the troika programme and/or the markets will demand that public spending will continue to be sharply restrained. We will be reliant on a boost in Foreign

Overview | 3

2012 2013 2014 2015 2016 2012 - 2016

Transport, Tourism & Sport 1,231 900 879 818 818 4,646 (mostly road maintenance)

Environment, Community 861 726 575 574 574 3,310& Local Government

Jobs, Enterprise & Innovation 514 458 457 454 451 2,334

Education & Skills 430 415 475 475 415 2,210

Health 390 390 390 390 390 1,950

Other 509 484 477 542 605 2,617 TOTAL 3,935 3,373 3,253 3,253 3,253 17,067

Public Capital Programme - Direct Exchequer Capital Funding €M

TABLE 1 : MULTI-ANNUAL CAPITAL INVESTMENT FRAMEWORK 2012-2016

The aftershocks of the financial crisis continue to dominate the framing of the Exchequer budgets and domestic demand generally.

Page 7: Davis Langdon Review 2012

4 | Overview

Direct Investment (FDI) and indigenous export companies, which we appear to be seeing the beginnings of, to mitigate the reductions elsewhere in the private sector. We expect output levels to bottom out in 2013 before showing low single digit growth in 2014 onwards.

There is a real danger of a skills shortage materializing across a number of the key craftsmen and professional groups.

“To illustrate the long path to recovery facing the construction industry, Figure 1 shows the sustainable level of output for the industry (based on The Society of Chartered Surveyors Ireland (SCSI) Report stating 12% of Gross National Product) based on 2% GNP growth and for the purposes of the example two scenarios of 10% per annum and 15% per annum growth in construction output. We know from experience that the growth/decline rates of construction output are cyclical but even with these ambitious growth examples it would be 2018 or 2023 before the sustainable level would be reached. In respect of our output projections in Table 2, there are inevitably downside risks however, hopefully the recent NAMA announcement of investment of €2 billion over the next four years will go some way to insulating against such risks. As a measure of the significance of this NAMA announcement, if the €2 billion is spread evenly over the four years the €500 million in 2013, would be equivalent to the proposed reduction in the Public Capital Programme.”

Table 2 outlines a summary of our projections for the construction

industry and those of other commentarys in the industry.

Construction Costs & Tender PricesIncreased competitiveness was a much sought after aspiration during the later part of the Celtic Tiger period and with some justification as everyone had got used to paying more for goods and

services and it didn’t seem to matter too much as people’s incomes were rising similarly.

Needless to say the adjustment has been sharp and none more so than in the construction industry, however in common with other sectors the cost base has been less elastic than prices. Tender prices saw a cumulative

Tomás Kelly Regional Director Medium Term Outlook

2011 2012(e) 2013(f)

CENTRAL BANK 8,822 7,862 7,426

Tender Prices % -1.10 —

Volume Change % -9.90 -5.50

SCSI 8,684 7,448 6,956

Tender Prices % — —

Volume Change % -14.50 -6.60

DAVIS LANGDON 8,500 7,755 7,827

Tender Prices % 3.00 3.00

Volume Change % -11.40 -2.00

Construction Output €m €m €m

TABLE 2 : Construction Output Projections (e) Estimated (f) Forecast

Figure 1: Construction Output Scenario Tracker

Optimum Construction Output(Based on 12% of GNP) €’000’s

Construction Output €’000’s

Construction Output (Scenario A 10% p.a. growth) €’000’s

Construction Output (Scenario B 15% p.a. growth) €’000’s

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Page 8: Davis Langdon Review 2012

National University of Ireland, Galway - New Engineering Building, Galway.(image courtesy of Neil Warner Photography)

Page 9: Davis Langdon Review 2012

37.5% drop between 2007 and 2010 inclusive whereas official statistics would indicate that costs have been largely static (and in some instances increasing) in the same period. Of course, labour costs have in reality dropped further through a combination of salary cuts and reduced overtime payments, etc. The announcement in June 2010 and implementation in February 2011 of the 7.5% reduction in Registered Employment Agreement wage rates was indicated as a temporary measure to be reviewed thus we would expect murmurings of such a review to emerge in the second half of 2012 with arguments on both sides (unions and employers) for upward and downward movements respectively.

On the materials side, the continuing increasing energy costs, growing demand in developing countries and weakness in the Euro will keep upward pressure on imports in particular.

In summary, we would anticipate construction costs of circa +2% in 2012 and +2.5% in 2013.

In terms of tender prices, after the sharp decline referred to above, 2011 saw some stability return to the market and we recorded an average 3% increase. We would see this return to tender price increases more a correction of prices having overshot any possible reduction in costs, rather than the restoration of profits in 2011.

Whilst we continue to see tenders being submitted which could be considered “potentially abnormally low,” their prevalence is reducing. We would anticipate tender prices to continue to

increase at modest levels of on average circa 3% p.a. in 2012 and similar modest increases in 2013, with the cautionary note that the industry may experience a shortage of competition in certain sectors and in particular for high value contracts.

Where now for the Public Sector?Davis Langdon, an AECOM company’s estimate of the construction industry in 2012 is €7.75 billion as compared to an output in 2011 of €8.5 billion. The recent SCSI Construction Industry report (prepared by DKM Economic Consultants) has identified that a sustainable level of construction output in a mature economy should be circa 12% of GNP (or 10% of GDP).

Based on GNP of €129 billion/GDP of €161 billion in 2011 a sustainable level of output would be in circa € 16 billion. This is over double the current projected output. So the real question is, in a number of years when (hopefully) stability and a sustainable output level returns to the market, what sort of construction industry will we have in Ireland?

The current industry is characterised by uncertainty, insolvency, below cost tendering and conflict. This, combined with the massive reduction in output, has resulted in a collapse in morale in the industry and a wide-spread skills drain, both from the industry and the country.

The Multi Annual Capital Investment Framework (MACIF) (see Table 1 on page 3), shows a stable level of spending over the next four years at a

level of €3.3 billion per annum. However to consultants and contractors it is seen as an extremely challenging environment to do business in.

Some of the key reasons for this are:

1. Cost of Procurement procedures and Tendering

2. Cost focus of tender process leading to “race to the bottom”

3. Risk transfers

4. Cost incurred on cancelled projects

5. Resources & Skills deficit in public sector clients

It is not only consultants and contractors that find public projects tough going. Individuals within public bodies have been faced with their own range of challenges, including a moratorium on recruitment, non- renewal of fixed term contract staff, early retirements, re-deployments and decentralisation.

Whilst the number of projects has diminished, the workload on each project has increased due to the challenges of the economic climate and the new procedures and contracts introduced through the Capital Works Management Framework. These procedures have been introduced with little training and are subject to change. The introduction of the Department of Finance Circular 10/10, whilst well intentioned, placed another regulatory burden on project and procurement managers in the public sector.

The net effect of all these issues is that the area of the Irish construction

6 | Overview

It is not only consultants and contractors that find public projects tough going. Individuals within public bodies have been faced with their own range of challenges, including a moratorium on recruitment, non-renewal of fixed term contract staff, early retirements, re-deployments, being forced to accept below cost tendering and decentralisation.

Page 10: Davis Langdon Review 2012

Overview | 7

industry that one would expect to be the most stable is a very difficult place to do business in. The fear is that dynamic and innovative players in Irish construction industry will tire of the challenges of public sector projects and will turn their focus to emerging elements of the private sector such as the Foreign Direct Investment (FDI) market or growth markets overseas. The potential knock-on effect of this would be to leave public sector construction projects in a place characterised by confrontation, poor performance and the associated challenges to successful delivery of good projects. We are already seeing examples of this on the ground.

NAMA: Is the bottom line everything?They certainly have had a busy year. In last year’s annual review published June 2011, the focus was on completing the transfer of the loans. However, the intervening period has seen NAMA make significant strides in the area of enforcement.

In July, NAMA published a list of 847 properties which were in receivership or administration, a number which steadily rose throughout the year to 1,169 at the end of March 2012 (see Figure 2).

NAMA have stated that it has completed its loan evaluation of business plans covering 97% of the loans on its balance sheet as at the end of March 2012.

So what does all this mean for the construction industry? Obviously one of the stated objectives of NAMA is to dispose of assets, at the right

price, before embarking on funding construction projects.

However, NAMA has played some role in getting projects moving, whether through supporting the borrowers in completing housing schemes, providing staple finance to schemes being purchased by investors or completion of schemes using receivers.

The previous 12 months have probably been the most productive in actual delivery of the individual business plan objectives leading to a number of distressed asset disposals that require construction activity during their workout phase, albeit not amounting to any appreciable turnover.

NAMA have approved working and development capital advances of €1.1 billion of which €506 million relates to Ireland. This expenditure is being advanced through its debtor companies, i.e. borrowers whose loans have been deemed eligible and have been transferred to the group.

In 2012/13 the best prospect one can hope for from NAMA in relation to what it can do for the construction industry is the disposal of assets/sites that are in demand, e.g. incomplete office blocks with ready to go end users/tenants, unfinished semi-detached, housing schemes that are in demand, etc. Obviously, the successful entry of these schemes to market is dependent on the right purchase price as opposed to any other factor. However, given the demand for offices, for example, from multi-nationals and the limited amount of suitable stock in the appropriate areas, it is likely that this year will be more fruitful than the last.

National Gallery of Ireland, Shaw Room, Dublin.

1200

1000

800

600

400

200

0Jul 11 Aug11 Nov11 Dec11 Feb 11 Mar12

Figure 2:Properties in receivership/administration

847 88

7 1,04

0

1,09

3

1,11

9

1,16

9

Page 11: Davis Langdon Review 2012

Sector Developments

ExpertExpert

The National Gallery of Ireland, Milltown Wing, Dublin.

Page 12: Davis Langdon Review 2012

Last year we highlighted the seismic shift in the construction industry output over the five year period from 2006 to 2011. Namely the collapse of the residential sector and the return of the public sector civil and general building programme to being the primary source of output. Not surprisingly then there has been a sharp focus on movements in that programme which we will review in our sector review.

Last year we also signalled the emergence of encouraging signs in the Irish export market as well as Foreign Direct Investment (FDI) sectors, and thankfully these early signs appear to be bearing fruit.

Across all the sectors, the key trend has been the reduction in the contract values of projects; reflecting both the decrease in tender prices in the last number of years combined with the reduced scope of works being carried out. Figure 2 illustrates the sector breakdown of the industry output in 2012.

PublicThe Government announced the broad parameters of their 2012 Public Capital Programme when they published their Infrastructure and Capital Investment 2012-2016 document in November 2011 and further detail and breakdown was provided in the budget last December.

The Multi Annual Capital Investment Framework (MACIF) 2012 provision showed a 16% drop on the 2011 figures which has meant every department has seen a reduction in their capital

allocation. Figure 4 illustrates the departmental allocations and the percentage adjustment in 2011.

(For further details of Budget 2012 Public Capital Programme please contact Tomás Kelly at [email protected] )

One of the difficulties being experienced in the first half of 2012 has been the slow progression of public sector projects. There have been a number of reasons, however, the two most prevalent relate to the area of public procurement.

Sector Developments | 9

Figure 3: Estimated Sector Breakdown of Construction Industry 2012 (SCSI/Davis Langdon Estimates)

Figure 4 : Public Capital Programme Budget Direct Exchequer Funding 2011 & 2012

Across all sectors, the key trend has been the reduction in the contract values of projects in recent years.

€m

1600

1400

1200

1000

800

600

400

200

0

10%

0%

-10%

-20%

-30%

-40%

-50%

-60%

-70%

Tran

spor

t Tou

rism

an

d Sp

ort

Envi

ronm

ent,

Com

mun

ity &

Lo

cal G

over

nmen

t

Jobs

, Ent

erpr

ise

&

Inno

vatio

n

Educ

atio

n &

Ski

lls

Hea

lth

Agric

ultu

re , F

ood

& M

arin

e

Com

mun

icat

ions

, En

ergy

& N

atur

al

Reso

urce

s

OPW

Othe

r

Industry (6%)Commercial (5%)Other Private Non-National (2%)Education (6%)Health (4%) Energy (13%)Roads (10%)Water & Sanitary Services (8%)Transport (3%)Telecommunication (2%)Other public Non-Residential (3%)Residential (38%)

Percentage change

Output 2011

Output 2012

Page 13: Davis Langdon Review 2012

10 | Sector Developments

Telecity Datacentre, Dublin.

JFK Primary School, Limerick.

Page 14: Davis Langdon Review 2012

Sector Developments | 11

Firstly, there appeared to be a significant slowdown in the number of etender contract notices in 2011 and the second half in particular. Due to the long sequence of events required from notice placement, procuring consultants, obtaining statutory consents and advertising and tendering main contract works, any interruption to this cycle is likely to slow down the capital programme.

The other factor has been the increasing duration required in the tender evaluation phase. This has arisen for a number of reasons including:

- the prevalence of very low tenders requiring greater analysis and clarification;

- on lower value projects the shift towards Most Economically Advantageous Tenders (MEAT) as opposed to lowest price (notwithstanding the benefits of same)

- increased number of challenges to the procurement process from unsuccessful tenderers

From the construction industry perspective, and the wider economy, it is essential that these obstacles are minimised to ensure value for money is achieved and most importantly that the economic impact of this investment in terms of jobs and stimulus is maximised.

CommercialAlthough 2011 was another tough year economically for the property market,

the commercial office fit-out sector was still reasonably active in 2011.

Activity in the commercial office sector is looking steady for 2012. Take up is down for the 1st quarter of 2012 compared to the first quarter of 2011 but this is mainly due to prolonged negotiations, the “one off” Montreveto take up (45,000 square feet) last year and some businesses looking to curtail expansion until the economic climate improves.

Demand for office space in Dublin is actually up 70% for the first quarter of 2012. Tenant activity has seen the likes of Google, Central Bank, BNY Mellon, Capita, Goodbody Stockbrokers all looking for office accommodation.

There has also been some office take up outside of the Dublin area such as PayPal and Prometrics in Dundalk and Hewlett Packard in Galway.

There should be continued office fit-out activity in the coming year largely due to FDI announcements.

In terms of new build office developments there is little or no activity nor is there any foreseen for the next six months at least. One significant new build development going ahead to the design stage is the high-profile Central Bank offices in Dublin.

RetailThe Irish Retail Market is still very challenging with a number of high-profile closures in the first six months of 2012.

From a retailers perspective, the Government’s decision not to proceed with legislation in relation to Upward Only Rent Reviews combined with the increase in the Value Added Tax (VAT) rate has created much angst and a viewpoint that it will be later rather than sooner for the retail market as a whole to improve.

Murmurs of planning reform in relation to the current retail size cap to allow companies considering large operating store’s such as Wal-Mart and Costco or even Tesco-Extra stores have been aired in documents about Ireland’s Budgetary and Reform Plans sent to German parliamentary committees.

However, seeds of optimism can be seen and for certain retailers, expansion plans have and are being drawn presently. New entrants have come into the market or are looking at entering the market, most notably Banana Republic have been reported as targeting a larger store on the top of Grafton Street. New franchise stores have opened such as Eason’s opening new franchise stores in Mullingar, Balbriggan, Kilkenny and Carlow and AIM, the franchise operator of Iceland, opening new store’s in Coolock, Clonmel, Ashbourne and Carlow, plus other retailers mainly in the pharmaceutical, food and discount sectors pushing expansion and re-location strategies.

For new entrants and existing retailers, the availability of favourable terms with regards to rent free periods, period of lease and rent and/or in certain cases, the build cost for certain retailers who

Anthony McDermott Regional Director Commercial

Mark SmithAssociateRetail

John O’Regan Director Public

Page 15: Davis Langdon Review 2012

12 | Sector Developments

prefer to own their own properties are providing the impetus for potential market expansion.

ResidentialIt was another tough year for the residential sector in 2011. In our 2011 Review, we projected house completion units for both the private and public sectors to be 10,000 units. Department of Environment, Community & Local Government statistics show that 10,480 units were completed for both the Private and Public sectors. This is a drop of circa. 28% on the 2010 figure of 14,602 units. Projecting forward for 2012 we would anticipate between 5,000 and 7,500 units to be completed.

Private SectorCurrent growth is again being restricted by weak consumer demand, unstable economic status and the uncertainty regarding the availability of finance and also future capital values. With the current supply overhang of available units both completed and near completed, it is unlikely to be much movement here although in certain areas of the Capital, 3 and 4 bed semi-detached houses are in demand.

Public SectorThe net housing need figure at present shows that 98,318 households were in need of social housing support at 31st March 2011.

Again, we would anticipate that most of the existing overhang of housing stock will be first in the shopping list for local authorities, however, some limited public residential developments will proceed, most notably those in the regeneration areas such as the north and south side of Limerick city.

Hotels, Sports & CultureContinued pressure in these sectors seems to be the common theme in recent years. Whilst there may be some small movements in the sports sector, there will be even less in the culture sector and the hotel sector not realising any increase in construction activity.

Hotel SectorIt is worth reminding ourselves that in 2004 there were circa 48,000 bedrooms but by 2008 there were circa 64,000 — a 34% increase in capacity to match a demand that rose by just 12-13%.

With the existing room supply outstripping demand, there is unlikely to be any real movement in new development in this sector in 2012, and we may in fact witness some partially completed works being demolished. One of the eagerly awaited hotels in Dublin that is scheduled for completion early next year is The Marker Hotel in the Dublin Docklands.

Sports Sector2011 saw the completion of some interesting projects in this sector, including the iconic UCD Student Learning, Leisure and Sports Complex and the University of Limerick Pavilion and Outdoor Synthetic Pitches project with four full-size, fully floodlit pitches.

The redevelopment of Pairc Ui Chaoimh is unfortunately the only real significant project on a national scale to progress. With limited public funding available (€30 million announced recently for the “Sports Capital Programme”) the likelihood of any real significant projects moving in either the private or public sector is slim. Some works will also commence at the National Sports Campus at Abbotstown.

Culture SectorIn general, the outlook for the culture sector in 2012 is for little or no growth. The recent budget shows reductions in Government spending in this sector with forecasts of circa €44 million to be given to the Department of Arts, Heritage & Gaeltacht, circa €100 million going to the Office of Public Works (OPW) and circa €21 million going to tourism. Of this combined total of €165 million it remains to be seen how much will be released into cultural type construction projects.

Andrew Thompson, Associate, Residential, Hotels, Sport & Culture

Eoin Dunphy Associate, Data Centres

Page 16: Davis Langdon Review 2012

Sector Developments | 13

Infrastructure & IndustryThe outlook for the civil sector is a case of contrasting fortunes — on the one hand roads and rail having delivered a national motorway network and significant investment in the greater Dublin area with the LUAS respectively, would appear to be destined for a number of years of significantly reduced expenditure. On the other hand, with the advent of the government policy on the introduction of water charges and the establishment of Irish Water, significant investment should be made. We are also likely to see strong investment in the energy sector.

In terms of industry, as flagged earlier, 2012 has seen a renewed stream of development from indigenous manufacturers performing strongly in the export markets and foreign direct investment inflows. This of course is extremely welcome and a sign that our competitiveness has improved against that of some of our competitors.One specific example would be the

data centre industry which has seen phenomenal growth over the past five years throughout Ireland and Europe. The attractive climactic conditions for optimizing free cooling low seismic activity, and sufficient Electricity Supply Board (ESB) supply has helped to guarantee this region as one of the main the areas of choice for long-term data centre development.

The challenge for data centre developers now is how to keep up with the insatiable customer demand for space and ensure that your business is ahead of the pack in securing those all important resources required to deliver on that demand, whether that be the expertise or the relevant technologies. With time as the driver, data centre clients need teams that have the proven expertise and track records in delivering programs in multiple locations concurrently using tried and tested low cost models which meet the highest standards.

Multinational global businesses are reviewing strategies and looking for growth opportunities from varying geographies’ through foreign direct investments. The companies that embark on such initiatives face and have to deal with many complex and local issues on an ongoing basis.

The pharmaceutical sector has shown strong investment in Ireland for 2012, with companies such as Mylan, Allergan, Amgen and Eli Lilly, to name but a few, that are either currently or planning to invest heavily in their operations for 2012. AECOM has a proven track record in this sector globally and is expanding its presence in this sector in Ireland as well as maintaining its service with current Irish pharmaceutical companies.

University College Dublin - Student Learning, Leisure & Sports Facility, Dublin.(image courtesy of Donal Murphy Photography)

Page 17: Davis Langdon Review 2012

Industry Developments

ProfessionalProfessional

University College Dublin - Student Learning, Leisure & Sports Facility, Dublin.(image courtesy of Donal Murphy Photography)

Page 18: Davis Langdon Review 2012

Every year sees the list of industry issues dominating the agenda change and evolve as the participants, clients, consultants and contractors grapple with the challenges of the day. In 2011, we looked at subjects such as The Capital Works Management Framework (CWMF), NAMA, Insurance Valuations, etc.

This year we summarise a cross section of some of the key industry developments that have been the subject of much discussion and/or market change this year.

Alternative funding sources for the Property IndustryThe primary sources of property finance are well known and include:

- Private equity,- Short-term and long-term finance from financial institutions,- State funding,- Institutional investors, e.g. pension funds.

We know that private equity is scarce, debt finance is not available at the levels required, state funding is on the decline and that institutional investors are eager but cautious. Where once we could depend on a significant development finance package with a small amount of equity all wrapped together in a suitably “geared” package, we now know that this is no longer an option.

So, is it just a matter of adjusting the ingredients and changing the recipe? Do we have the right ingredients, or indeed, enough of them? Recent new (and improved) recipes being explored recently include:

- Real Estate Investment Trust (REIT)- Equity partnerships/Private Rental Sector (PRS)- Project bonds

Real Estate Investment Trust (REIT)A REIT is a company that manages a portfolio of real estate to earn profits for shareholders. The main benefit and attraction of a REIT is that it does

not pay tax within the company and therefore avoids double taxation. It must pay out a high proportion (90% in the UK) of its property income to its shareholders. It works through buying shares in a listed property company that has elected for REIT status and operates in accordance with REIT regulations. These regulations are intended to ensure the company is primarily engaged in property investment, rather than in development.

The Government has stated that they will introduce the legislation and it is expected imminently. There are currently over 20 REITs in the UK, including household names from Hammerson to Land Securities with a total market cap in excess of €25 billion. So, how would REITs help in an Irish context? Firstly, NAMA could avail of it and transfer some of its €31 billion loan book into a REIT for investors. NAMA has recently stated that this would be an attractive option for them, should the legislation be passed.

Secondly, the current international investors who are seeking to purchase assets in the Irish market, could avail of a transparent and regulated investment vehicle that would be professionally managed and generate a return for their investment. This would have the effect of restoring the international confidence somewhat and provide a tried and trusted conduit through which they would conduct their affairs, without having to be directly involved in the management

Industry Developments | 15

One of the features of the industry from a client and consultant perspective in the last couple of years, and likely to continue in the medium term, has been the level of activity aside from actual construction works.

Page 19: Davis Langdon Review 2012

16 | Industry Developments

of the individual assets. As mentioned earlier, REITs are not permitted to lend into development. However, one would expect that in the context of a strong covenant, a REIT providing the long-term finance that a bank or banking syndicate would be in a strong position to provide development finance.

Maybe this Utopian example is not that far off when you consider the pent-up investor demand, the impending shortage of premium office space to satisfy the incoming multi-nationals, the value in the marketplace and the requirement for the banks to restart lending into properly geared deals.

Equity Partnerships/Private Rental Sector (PRS)The basic model for development in the residential sector, for the most part, is Develop and Dispose, i.e. the developer purchases the site, constructs the residential stock and then sells it to homeowners/private investors. One of the scenarios where an equity partnership comes into play is when the ultimate purchaser is not in a position to secure the finance to purchase their own property, e.g. potential purchaser can’t obtain a mortgage. There are various forms of Equity partnerships, particularly in the US, whereby the ultimate residents own their homes or shares in the overall development.

A proposal being led in the Irish context by James Pike, of O’Mahony

Pike Architects, incorporates the example whereby a promoter (private, local authority, housing association) obtains land and develops a residential scheme which is then “bought out” by an investor (e.g. pension fund, etc). The residents then pay a capital rent (cost of scheme plus annual return to investor), the capital rent being 10-20% lower than the market rent. Any payment above the capital rent is treated as equity, or buying part of your home, with full ownership being the ultimate goal.

Project BondsA project bond is a fund set up to finance a specific project or group of projects. They were typically used to fund large infrastructure projects and were very common in the United States and South America. Instead of using traditional bank lending, the project company could raise the senior debt through project bond issues. Capital market investors would buy the bonds if an investment grade credit rating, preferably at least A-, could be achieved.

Owing to the inherent risk in directly funding construction projects, they were insured by “monoline” insurers in a process known as “credit wrapping.” However, these insurers faltered during the downturn due to guaranteeing billions of dollars worth of sub-prime debt, and projects have stalled as a result. In response to this and burgeoning investor coffers, different

countries have been looking at ways to fund these projects without such credit wrapping.

In October of last year, the European Union adopted a legislative proposal launching the pilot phase of the €50 billion Europe 2020 Project Bond Initiative. The initiative aims to revive and expand capital markets to finance large European infrastructure projects in the fields of transport, energy and information technology. Although the “project bonds” proposal from the European Commission is subject to the approval of European governments, they have indicated that funding would be available to upgrade the Dublin-Belfast rail link, as well as transport connections in the ports of Dublin and Cork.

As this is only the pilot phase it is likely to take some time before we see a direct impact on project funding in the local market.

So, in relation to alternative sources of funding it does not appear as though we are on the cusp of a breakthrough in the near future. Looking at the few transactions that have taken place over the past year, it would appear to be more a case of using the best ingredients available and sticking to grandma’s old tried and trusted recipe than any type of haute-cuisine.

Neil McBeth Associate, Due Diligence

Paul Mitchell Director, Head of Office

Page 20: Davis Langdon Review 2012

Industry Developments | 17

The National Gallery of Ireland, Dublin.

Page 21: Davis Langdon Review 2012

18 | Industry Developments

At the very least, a detailed analysis of a potentially abnormally low tender will assist in developing an effective risk mitigation programme.

Work Outs by Asset ManagersThe financial crisis in Ireland has left us with a significant number of distressed and incomplete construction projects and a long list of developer and contractor insolvency casualties.

The lack of action on unfinished developments has led to additional risks for stakeholders that range from additional costs due to simple neglect and lack of upkeep, to health, safety and environmental issues. In many cases, the inaction and lack of funding has only served to reduce the value of the asset for the long term. The work out path is not for the faint hearted and requires intense effort and tenacity from the outset, to ensure a successful outcome. There are many challenges for stakeholders, which become apparent from the outset, and these require experienced professionals to assist in identifying and navigating a pathway to delivering the project. Amongst the key challenges are:

- Self funding mechanismsThe availability of finance, or lack of, has been much publicised so it is not surprising that this is probably the biggest challenge for funders in moving a work-out strategy forward. After that it is then important, where possible, that the development is phased in such a manner that will generate revenue to fund the remaining phases.

- Getting the disposal strategy rightInterlinked with the funding mechanism is the issue of developing a sustainable business model. This will require careful consideration of the key drivers and then testing these through thorough financial

modeling of all the inputs under the various development/work-out permutations, including critiquing the disposal strategy options.

- Unraveling of historical deals and agreements

Inevitably, when one goes to open up the file on a development that has stopped prematurely, there will be a myriad of agreements and deals. Needless to say it is only those with liabilities attached that are being brought to your attention, so a methodical approach and commercial awareness are key to resolving these.

- Obtaining certification for disposalThis problem is encountered on most projects and is usually solved through negotiation with the certifiers or, if not possible, using a new team, exhaustive surveys and certificates with certain caveats.

Activity to date has been predominantly driven by non-NAMA institutions that are intent on exiting the Irish market. The recent announcement by NAMA is welcome news and should see a sizeable increase in activity in this area.

Repair & Maintenance With the sharp decline in the level of new build construction, an increasing amount of the industry focus has turned to the Repairs, Maintenance and Improvement (RMI) sector. The RMI sector has of course also seen a decline in output, but not to the same extent, therefore, as a proportion of the overall total it has increased significantly (SCSI Construction Industry report estimates it at 41% in 2012 compared to 19% in 2006 per the DKM Construction

National University of Ireland, Galway - New Engineering Building, Galway.(image courtesy of Neil Warner Photography)

Page 22: Davis Langdon Review 2012

Industry Developments | 19

Stuart Griffin Associate, Project Management

John O’Regan Director

Industry Review and Outlook 2010 Report).

Of course, the need for repairs and maintenance is ever present. Real estate that is not maintained will start to diminish over time in functionality and become unfit for purpose. As soon as the client takes possession of the building the wear and tear of the building and its fabric starts. Once one system or element fails, there is generally a consequential knock-on effect on other elements and systems. For example, if a hole appears in a roof covering, there will inevitably be water damage on the internal fabric of the building and services. Should the plant and equipment and services start to fail due to water ingress, the knock-on effect of down time from staff and users not being able to use the building will be significant.

Frequent and regular repair and maintenance is the most cost effective way for providing and retaining a good functional building. The inspection of existing buildings is key to effective asset maintenance and management. Identifying and analysing the problems, assessing the risks, and establishing a strategic way forward for maintaining and repairing the building is key. Most repair and maintenance of buildings is reactive, where designers and sub contractors work to address issues as they arise, and clients spend little time assessing, scheduling, planning and budgeting to prevent such issues arising. Resources allocated to evaluating and putting plans in place to repair and maintain real estate anticipating and planning to address issues before they become problems, is money well spent. Some clients are

actively managing their real estate and we are working with others to develop asset registers, including schedules of condition and planned and preventative maintenance schedules.

The improvements segment of RMI has also been experiencing greater activity than new build, as organisations have been downsizing or re-organising to sub-let space. In some cases where in a different climate clients may have chosen the new build option, they are now making the decision to refurbish their existing space.

Abnormally Low Tenders (ALT’s)Have you ever received (or submitted) an abnormally low tender for consultancy services or construction works?

Have you ever rejected a tender because it was abnormally low?I think the answer to the first question above would be a resounding yes from just about everybody involved in tendering in the Irish construction market.

The answer to the second question is harder and the answer may well depend on whether you are operating in the private or the public sector.It is not uncommon for the lowest bid to be passed over in the commercial world. Are these decisions always fair — maybe not — but in the private sector, as long as the tender documents are structured right, it is the clients call. The disappointed contractor or consultant has no come back.How about the public sector? The position here is much more complicated. There are defined processes both in national and

European Union (EU) procurement guidelines and directives. These must be scrupulously followed by the client or there is a risk of a successful challenge to the process which would result in the outcome of the process being overturned or damages becoming due to the injured party.

There is detailed guidance available on the steps to be taken in assessing ALT’s and these involve seeking clarifications and additional information from the tenderer in question. By demanding this level of information and employing expert analysis from the quantity surveyor and design team, the client can obtain a very clear picture of how the bid was prepared and how robust the price is.

Davis Langdon’s experience of public sector tendering is that it is rare for a tender to be rejected as abnormally low but that it is critical that the detailed assessment is carried out. Often the investigation results in the bidder realising the challenges that their tender presents and withdrawing their tender. In other cases, the investigation uncovers issues that can be resolved prior to contract and hence avoiding potential claims. At the very least, a detailed analysis of a potentially abnormally low tender will assist in developing an effective risk mitigation programme. Typical mitigation measures include increased provision of onsite cost, programme, quality and safety monitoring, increased contingency provision, increased focus on project administration and structured project management processes involving principals of all the bodies involved.

Page 23: Davis Langdon Review 2012

Business Intelligence

LeadersLeaders

7 & 8 St James’ Square, London.

Page 24: Davis Langdon Review 2012

Davis Langdon, an AECOM company, has extensive knowledge and experience across the full spectrum of service lines and sectors in the industry. However, notwithstanding this track record, we firmly believe it is key to any appointment, big or small, to first listen to and understand our client’s requirements.

In the same way, when we are writing our annual review, we believe it is important to listen to and understand the issues concerning key leaders in the industry and in the current climate people who are at the coalface in terms of delivering or facilitating growth in key sectors in the coming years.

We thought you would like to listen too!

So we have summarised in question and answer format, interviews we conducted with a number of thought leaders on what they see as the challenges, solutions, and more importantly, the likely trends in their sectors in the short to medium term.

Pat Gunne, Managing Director, Green Property

Commercial:Q Stamp duty reduction; Upward

Only Rent Review (UORR) clarity, etc. Positive changes but what is the effect?

A The changes you mention are significant to the extent that investment in real estate had become a binary issue. Once the UORR came on the table for discussion, and it was surrounded by uncertainty, the market shut down so it has been significant to the extent that Ireland is investable again, however, in terms of activity, the market hasn’t started trading in any meaningful way.

To re-ignite the market, you need external capital investment because the domestic equity has been effectively wiped out due to the extent of the collapse in the market.

Q Poor credit ratings, second rate investments — is it a case of no thanks from investors?A Yes and no. The funds will want

to buy shiny buildings, with shiny tenants, in grade A locations. There is only a certain amount of that and it represents a tiny part of the market.

On the other hand, the reason Ireland is seen as attractive for US private equity is that it is seen as “in distress.” Up to now the pricing gap has been too wide, but given that we are now in year five of the meltdown, I suspect the level of market activity will slowly begin to improve.

Finance:Q Debt financing, is there any out there? A The Irish banking system is entirely

dominated by NAMA. Bank of Ireland (BOI) and Allied Irish Bank (AIB) have both said they want to lend to the sector, however, both banks are trying to reduce their overall exposure to commercial property. Net lending to real estate in the United Kingdom (UK) is negative, in Ireland it is that multiplied by 10 and we will be in that net negative lending environment for the next three to five years.

Q Government — if you could ask for one wish? A The government can only control the

Irish part of the solution; they cannot control what happens with foreign owned banks, all of which are in retreat.

The biggest thing they could do would be to restructure their deal with the troika on their own capital

Business Intelligence | 21

We believe it is important to listen to and understand the issues from the key leaders in the industry

Page 25: Davis Langdon Review 2012

22 | Business Intelligence

structure and accept that a good chunk of NAMA is a long-term mortgage bank as opposed to a grind down agency as it is a constant overhang on the market.

Q Once the debt and liquidity return, we will have a sharp upturn in property in terms of prices. True or False?A To try doing the crystal ball

gazing when there is so much macro uncertainty is of limited value. At the moment we are taking the view that the macro is a pronlonged workout at the European and indeed global level, but particularly around the euro area. Having said that, if you buy central Dublin real estate at below reinstatement cost, with income to get you through however many years, and with arbitrage on a debt package, then that probably is a good risk adjusted investment. Who knows whether we are right or wrong, that is the view we are taking, and the majority of our investment focus remains in the UK.

Distressed Property:Q What would you change/enhance

about the way NAMA operates today?

A The changes at the top have been very positive and they have done well in the UK, their challenge is around the Irish market. They are trying to be part of the solution in terms of the lack of liquidity by saying that they are willing to put in debt on deals where they are selling which is crucial and one step away from

accepting that they are a long-term mortgage bank.

They also could start selling Irish real estate in lot sizes and packaged in a format which meets the investment appetite of the major international funds. They might not like the price, however, we either accept that the capital is external private equity or not. The overriding objective of NAMA must be to re-create a market and to do so they need to sell. Ultimately the market determines the pricing and not the November 2009 entry point which NAMA had no control over when it was being cast in stone. They’re trying their best, but it’s a very challenging environment.

Q Any lessons to be learned from our nearest neighbours?A Lloyds for me have been very

refreshing in their approach, obviously they have taken a lot of pain but they are dealing with the resolution in a very pragmatic way. Typically they are avoiding, where possible, in dealing with it through the courts, and instead are sitting down and having sensible discussions with borrowers in an attempt to resolve their problems through a consensual process.

The Government can only control the Irish part of the solution; they cannot control what happens with foreign owned banks, all of which are in retreat.”

JFK Primary School, Limerick.

Page 26: Davis Langdon Review 2012

Business Intelligence | 23

Bill Nowlan, Managing Director, W.K. Nowlan & Associates

Q What would you see as the key lessons from the financial crisis that should be learned by the property industry?A Property booms and busts are facts

of life, you can go back generations, go back millennia — Cicero put his pension fund into property.

This is the fourth recession that I have experienced in business. So I would say nothing will change, it will just be different the next time. Lessons do not get remembered for longer than 10 years.

Q In terms of the residential property market, what do you see as the fate for the sea of Ghost Estates? A You have to slice and dice this, first

of all there are ghost estates that are:- well built houses but for which there is no demand because of their location and then there is, - poor quality accommodation in inappropriate locations.

In the first case, the price will fall to a point at which they will be bought, whereas in the second case demolition will be the only option in a lot of instances.

So, in short, you have to look at each situation and decide whether this is for holiday homes, the JCB or time.

Q Is the mini boom in Foreign Direct Investment (FDI) a saviour for our ailing property industry?A Saviour is probably not the right

word; it is probably going to be an important factor. One of the things we need to do is put in the infrastructure to encourage FDI — I think this is where our planning comes in.

Funding Q When do you foresee the funding impasse resolving itself and what its likely effect will be on property values?A I believe that the money will be found

because we just cannot, at a political level, continue to keep grinding people down. But I do think that you have to have the controls in place, so I would think that after this treaty is in place. Once funding returns, I believe that house prices in Dublin will spike very rapidly. If you ask me where I would actually speculate my money, now is to buy land in Dun Laoghaire or on the Luas line, I think that will go like a train.

NAMAQ Have you a sense of what the

NAMA strategy is towards managing their Irish portfolio?

A I think what you are beginning to see happening is that they are dribbling property out through the receivers to see what will happen.

You can’t push a piece of string and I think NAMA have a problem in that they have this huge need to actually get property out there but it has to come on the demand side. At the moment, they are concentrating their efforts in the UK and overseas and the big question is should they just drop prices down?

This is the fourth recession that I have experienced in business. So I would say nothing will change, it will just be different the next time. Lessons do not get remembered for longer than ten years.”

Page 27: Davis Langdon Review 2012

Maurice Mortell, Managing Director Ireland, Telecity Group

Q Do you envisage data centreactivity continue at the current pace of growth for the foreseeable future?

A The industry has been through a number of cycles; my view would be we are on the cusp of a new wave of development, coming into Dublin specifically. If you have a league table for locations in Europe you would have:

- Amsterdam- Paris- London- Frankfort- Dublin

Unfortunately, nationally the infrastructure isn’t as good on the diversity of Telecoms side. The key selection criteria would be:

- Power- Telecoms infrastructure (trans-atlantic international connectivity tier 1 routing)- Mature supplier market- Project management companies- Distribution grid/resilient- Number of players in the market- Energy efficiency 50% of the year temperature below 6 degrees- Self fulfilling prophesy — critical mass

Q What measures should the government implement/maintain to assist with this growth?A It is not a labour intensive market;

if you are going to really look to sustain the industry you need to look at the types of clients that are attracted to the facilities and how you best cater for their requirements. So, for example, if you were to set up the equivalent of an IFSC for the IT industry, you are creating an environment making it easy and competitive to come in and set up business.

Q With the sale of state assets on the table, have you particular fears for your sector?A The big issue would be the

distribution grid, I would be very reticent to think that they would privatise that — we need to hold on to it and keep control of it. One of the very big positives is the robustness of the grid. It is a big factor, we are not that competitive in the price of energy supply.

Q In terms of capital investment, would you consider Ireland a good value for money location?A From what I have seen we tend

to use the same people in the same locations to get the benefit of it — that doesn’t always work to your advantage — but Ireland is competitive enough, across the group the cost/square foot it is in and around the mark.

Q We have endured Europeanpressure to broaden and expand our tax base; how critical is it to the data centre sector that it is maintained?

A From our perspective it is absolutely critical — 65%-70% would be overseas clients (predominantly US) who would not have a set up and are just availing of the taxation regime for their transaction based business, but politically it would appear to be a no-go area so I would not see it happening.

24 | Business Intelligence

For example, if you were to set up the equivalent of an IFSC for the IT industry, you are creating an environment making it easy and competitive to come in and set up business.

Page 28: Davis Langdon Review 2012

Business Intelligence | 25

Donal Murphy, Director of Project Finance, Bank of Ireland

Q Have the Budget 2012 Public-Private Partnership (PPP) postponement announcements damaged the reputation of Ireland as a market for investors/project sponsors?

A On the positive side, the two roadsschemes, the N7/N11 & the N17/N18, and the schools PPP bundle schemes (bundle three contract signing due second half of 2012 and bundle four likely in 2013/14) are receiving continued support.

The two areas negatively affected by the recent announcements were the third level bundles and major flagship public transport projects. The third level programme was probably the real surprise. It was disappointing from a market perspective as this programme was at a well advanced stage in terms of procurement. There is no doubt that the cancellation of an entire programme has the potential to be damaging to sponsor interest for future projects.

Q What do you see as the outlook for PPP projects in Ireland in the short to medium term?A The overriding constraint will be the

capital spend and what will be allowed under the programme with the troika. Assuming the current programme can be delivered, given that projects can take 12-24

months to get through the initial stages and the fact that there are none (bar Schools Bundle 4) at that early stage, there may well be a quiet period in terms of contracts being signed during 2013/2014. However, recent positive engagement between ministers and the European Investment Bank (EIB), and a sense of positivity around their role and the use of privately financed projects to provide economic stimulus, may result in a renewed impetus for the use of the PPP model.

In terms of funding, at the peak of the Irish market bank groups were generally dominated by international banks with the Irish banks playing their role; in recent years obviously things have changed in so far as Bank of Ireland is effectively the only Irish bank operating in the space and the international banks (who were typically not based in Ireland) have withdrawn from the Irish market. The role of the EIB will be absolutely critical because they can significantly close the funding gap on some of these projects (up to 50% funding) but to be blunt for a long-term sustainable market there needs to be more than one domestic bank and more international banks active in the market.

Q If you had to give one piece of advice to the government in respect of maintaining a sustainable PPP market in Ireland, what would it be?

A The key message would be to “pick the specific programmes you wish

to procure via PPP and stick to them rather than spreading resources too thinly over a whole range of projects.” In other words, use PPP’s for specific sectors in specific circumstances and then look to the market to deliver on these. By keeping the projects simple, straight forward with a reasonable risk allocation and consistent with previous transactions, the chances of maintaining project sponsor interest is greatly increased.

Q There have been some PPP projects which have failed for one reason or another; are there any lessons that could be learned from these?

A Projects such as the co-located hospitals and social housing were hybrid PPP models, taking a range of market related risks without some of the traditional attributes of a previously banked projects.

If there is a lesson to be learned (for the PPP market generally) from these projects it is that there needs to be early and regular consultation between the procuring authorities and the funding market. Dialogue and market soundings prior to proceeding with a procurement process present the best opportunity of structuring a project with the best possible chance of attracting interest and succeeding. Once you embark on a procurement process it can be difficult to subsequently make any meangingful changes to a project structure.

Page 29: Davis Langdon Review 2012

Geographies

TeamTeam

The Shard, London.(image courtesy of Sellar Property Group)

Page 30: Davis Langdon Review 2012

If we were ever in any doubt that we operated in a global market we only have to look back over the last few years at a catalogue of international events which have impacted on world markets and in turn filtered their way through to effecting most economies. In particular, open economies such as our own which are highly dependent on international trade. Unfortunately for Ireland we had our own domestic financial and banking collapse which decimated any defences we may have had to such international events.

With this in mind, it is important to look at the recent industry trends domestically and internationally where Irish contractors and consultancy practices are seeing increasing business for their services. .

Island of Ireland

In larger countries, significant regional variations in output can and do prevail from time to time, depending on differing economic cycles and regional needs that exist. In Ireland however, regional variations in output tend to be more subtle.

This is largely due to what some might consider a good open democracy or others might call parish pump politics. So, typically output has tended to correlate with the demographic distribution, and by implication votes. There is a practical purpose to this also of course in that public services will be needed to match the demand of the demographic distribution, so for these reasons when we are looking at potential trends into the medium term it is always useful to study demographic movements.

April 2011 saw the national census carried out and we have recently seen the first detailed set of results from it published. The map on the left illustrates the population change movements since census 2006 and reflects the increasing urbanisation of the population and the gradual depopulation of the more remote rural locations.

In the short term, all the regions are experiencing negative trends in terms of demand, such as a reduction in public spending and a lack of finance and business confidence for private clients to invest. On the supply side, the issues prevalent in the market

are a reduced number of experienced contractors, difficulty in getting specialist sub-contractors, continued presence of abnormally low tenders and delays in obtaining performance bonds to name a few.

Notwithstanding these challenges, the regions are seeing pockets of revival in different sectors and we identify a number below which have been particularly active.

EducationIn response to increased demand there has been a sustained primary and secondary school building programme. It has also been signalled that in the near future the department will be devolving delivery of parts of the programme to other agencies such as the Vocational Educational Committees (VEC’s) and possibly the National Development Finance Agency (NDFA). In addition, new design team procedures to reflect this devolved approach will also be implemented.

In contrast the government’s capital programme has sharply cut back on capital spending at third level institutions. Notwithstanding these departmental cuts the universities have been very proactive in identifying other sources of income and the merger/clustering of institutes of technology to form technological universities will necessitate investment.

Private Healthcare The economic crisis has seen significant numbers not renewing their private health insurance. However,

Geographies | 27

Notwithstanding these challenges, the regions are seeing pockets of revival in different sectors and we identify a number below which have been particularly active.

Percentage population change 2006-2011(Census 2011 Eds, Central Statistics Office)

Page 31: Davis Langdon Review 2012

there still remains a sizeable proportion of the population which continue to pay for same. Thus whilst the downturn has severely impacted potential new entrants to the market, existing players such as the Bon Secours and Galway Clinic continue to invest.

Industrial As noted earlier in the review there has been a significant increase (predominantly FDI driven) in investment in the industrial manufacturing sector and this has been well distributed across the regions, albeit in the key cities. If we look at the first quarter announcements from the IDA (summarised below) we can see an indication of the range of sectors and regional spread being achieved.

Limerick, Mid-West Region.Small scale refurbishments and fit outs have taken the place of the previous large-scale private commercial and industrial developments. Commercial property owners are having to work harder to find alternative uses for their properties in order have any chance of securing lettings, and in a lot of cases are succeeding which is encouraging.

On a positive note, a new landmark building, a central headquarters office for the Munster GAA, is well underway with completion due in the summer of 2012.

Education and healthcare projects seem to be the only real public sector projects of note that are getting underway in the region. Probably the most significant public building to beconstructed at present in the region would be the new critical care unit in the midwest regional hospital campus in Dooradoyle, Limerick. This new €20- million facility will bring much needed, state of the art, healthcare facilities to the region. The Limerick Regeneration Agency (LRA) is also progressing a number of projects with tenders just back on the “Southill Elderly Persons Accommodation.”

Cork & Southern RegionCork and the region generally has got at least its fair share of the school building programme with a number of new schools, and large stand alone extensions to existing schools, getting the go-ahead. University College Cork (UCC) have completed their new extension to the Mardyke Arena which enhances the offering

significantly and provides high performance training facilities for elite athletes.

In the private sector the Industrial/pharma/food/technology sectors have been the stand out performers with significant investments being made in the likes of Boston Scientific, Ely Lily and Pepsi. Also, Leibherr have made a significant investment to their facility in Killarney.

With the success of the O2 and Grand Canal (now Bord Gais Energy) Theatre in Dublin, there is an appetite for an arena in Cork. Badly needed many would argue, currently a race between the BAM/Heineken Brewery Quarter scheme and the O’Callaghan Properties scheme, both of which now have planning permission. In private healthcare, the Bon Secours Northern Block project is due to go to site in early summer, which will provide a much needed boost to construction activity in the city. On the sporting front the Gaelic Athletic Association (GAA) are making a significant investment in re-developing Pairc Ui Chaoimh, with design commenced on a new covered stand and upgrading of the terraces.

Geographies

28 | Geographies

Region Announcements Jobs IT Financial Pharma Other

Greater Dublin Area 9 1,280 1 8

South 4 230 1 1 2

Mid-West 2 32 2

Connaught & North West 3 525 1 2

North East 1 1,000 1

Table 3: IDA Ireland Announcements Jan - Apr 2012

Page 32: Davis Langdon Review 2012

Geographies | 29

In larger countries, significant regional variations in output can and do prevail from time to time depending on differing economic cycles and regional needs that exist. In Ireland however, regional variations in output tend to be more subtle.

University of Limerick - Pavilion, Limerick.(image courtesy of Donal Murphy Photography)

National University of Ireland, Galway - New Engineering Building, Galway.(image courtesy of Neil Warner Photography)

National University of Ireland, Galway - New Engineering Building, Galway.

(image courtesy of Neil Warner Photography)

Page 33: Davis Langdon Review 2012

30 | Geographies

Galway & Western RegionIn common with the rest of the country there is a significant overhang of residential accommodation in the regions’ provincial towns. However, Galway city and suburbs does not have an overhang to the same extent and in some areas the next couple of years could see a shortage of the right properties in the right locations.

In terms of construction activity in the public sector, education and health continue to be the primary sources. National University of Ireland (NUI) Galway continuing on from completion of their New Engineering Building in 2011 with their research bundle of three buildings currently on site. It includes a Clinical & Translational Research Facility on the University Hospital Galway campus in conjunction with the Health Service Executive (HSE) and the Health Research Board (HRB).Whilst the private sector continues to struggle and there remains a number of large development sites vacant in Galway city, similar to other regions private healthcare (Galway Clinic continued expansion of facilities) and foreign direct investment (FDI) have proven to buck the trend. In addition to the traditionally strong medical devices sector there have been investments in new areas such as gaming with Bioware recently establishing a customer services centre in Galway. Northern IrelandThe output of the Northern Ireland construction industry was £2.3 billion in 2011. It is likely that this will, similar to the Republic of Ireland, suffer a decline in 2012. The industry breakdown for 2011 by sector is

indicated in the pie chart on the left.2011 saw the progress of a number of significant projects, including the Titanic Belfast. 2011 and 2012 will see the appointment of design teams for a number of long awaited public sector health and sports facilities which are now progressing positively.

Whilst the Northern Ireland property market did not see the same extreme of the southern property bubble, it does still have its share of distressed developments. The path of the construction industry will continue to depend on the public sector capital programme until the local and international economic environment shows signs of recovery.

Britain

2011 ended immersed in uncertainty. The Eurozone had lurched from crisis to crisis unresolved throughout the autumn and into winter.

Although statistics show that construction activity picked up in some areas, it was not enough to cause any rebound in construction prices after the 18% fall that had occurred since early 2008. Overall, at the end of 2011, prices were on average 1% lower than at the end of 2010. There remains a huge amount of surplus capacity in the industry which is why prices have not moved upwards even when workload picked up last year.

Low or even cut-throat pricing means that claims are inevitably more to the fore. Some contractors are adopting claims principles on all their contracts

Geographies

38%

20%

19%

23%

ResidentialInfrastructurePublic BuildingPrivate Building

Figure 5: Northern Ireland Construction Industry Output 2011

Page 34: Davis Langdon Review 2012

Geographies | 31

Titanic Belfast (image courtesy of Christopher Heaney Photography)

Page 35: Davis Langdon Review 2012

32 | Geographies

but many are more discerning, trying to maintain good relationships with clients who may have more work to offer in the future. Clients and their consultants and main contractors are now even more concerned over the stability of the supply chain with increasing numbers of subcontractors going into administration. The number of companies going to the wall peaked in 2009 but latest figures show the trend increasing again.

There remains a strong pipeline of private commercial work in London (but not elsewhere), programmed to start during 2012 but developers are once again becoming nervous and perhaps holding back from actually pressing the start button. Occupier demand is falling. Banks are embarking on a fresh round of redundancies. Rental expectations have fallen. John Lewis and Sainsbury reported a bumper Christmas sales period but most other retailers are finding life hard.

The housing market often leads the way in the fortunes of the construction industry, whether trending up or down. House prices in 2011 ended slightly down and there may not be a consensus for the trend in 2012 but many believe 2012 will be worse than 2011. So infrastructure may be the only show in town that is really looking up but will only be of benefit to specialist contractors and those that have consciously tried to reposition themselves over the last few years in anticipation.

In London construction prices will probably continue to flat-line but elsewhere prices may well be forced

down a further 1-2%. In 2013 no significant increase in activity is forecast but contractors will try to improve margin wherever they can.

Construction output and new ordersConstruction output as measured by the Office for National Statistics (ONS)held up unexpectedly well in 2011. Output in the public non-housing sector declined by 5% in 2011 but infrastructure grew by almost 11% and private housing by 8%.

The decline in new orders in 2011 will lead inevitably to a reduction of work on site this year and next. Experian are predicting a 1.3% increase in 2013 while the Construction Products Association (CPA) do not see an increase before 2014.

Global Markets

Construction Market Overview2011 was yet another difficult year for construction globally. Construction spending growth has stalled and 2011 was the fourth consecutive year with little or no growth. Overall, world construction spending grew by just 0.5% to $4.6 trillion and is still below the levels achieved in 2007. However, on a positive note, 2011 saw the first increases in world construction spending since the start of the recession. Although 2012 is looking slightly more pessimistic as the developing economies responsible for much of the growth in the recent past are starting to slow as their developed country export markets continue to decline.

There remains a strong pipeline of private commercial work in London (but not elsewhere), programmed to start during 2012 but developers are once again becoming nervous and perhaps holding back from actually pressing the start button

Qatar Science & Technology Park, Qatar.

Page 36: Davis Langdon Review 2012

On a regional basis, all regions apart from Western Europe and North America saw positive construction spending growth, although at reduced levels to those of the recent past. Asia and Latin America were the fastest growing regions through 2011 by a wide margin.

For the second year running China was the largest construction market in 2011, and is forecast to be the fastest growing market through 2012 (Figures 6 & 7).

There were some large regional differences throughout the year. Construction spending in Western Europe was the most affected with a contraction of 3%, with the most significant falls occurring in Portugal, Ireland, Italy, Greece and Spain. The continuing sovereign debt problems and Eurozone crises suggest that Western Europe will continue to struggle in the near term.

Regional OverviewOur review of world construction in 2011 and outlook for 2012 and beyond concentrates on the six main trading blocks, namely: Africa; the Americas; Asia Pacific, Australasia; Europe and the Middle East.

Asia PacificAsian markets are expected to continue to exhibit robust construction spending growth through 2012. China (+9%) is the standout followed by India (+8%), Indonesia (+8%) and Vietnam (+7%). All sectors are likely to exhibit significant growth, largely led by non-residential construction.

China

USA

Japan

Germany

Brazil

India

France

UK

Italy

Korea

Mexico

Australia

Spain

Others

0 100 200 300 400 500 600 700 800 900 1000

Figure 6: US$B

8

6

4

2

0

-2

-4

-6

-8

US

A

Chi

na

Japa

n

Ger

man

y

Ital

y

Fran

ce

Bra

zil

UK

Kor

ea

Indi

a

Mex

ico

Spa

in

Aust

raili

a

Oth

ers

Figure 7: Percentage Change

Geographies | 33

For the second year running China was the largest construction market in 2011, and is forecast to be the fastest growing market through 2012.

Page 37: Davis Langdon Review 2012

Olympic Stadium, London.(image courtesy of Populous)

Page 38: Davis Langdon Review 2012

China not only exhibits significant levels of growth but is also the largest market in the world. China accounted for 41% of the Asia Pacific total in 2011 (almost twice the size of the Japanese construction market). Construction spending in China is shifting from the coastal cities to the interior and western provinces. Through to 2015, infrastructure spending is expected to dominate China’s construction spending.

India on the other hand only accounted for just over 10% of the total Asia Pacific market. Given the current constraints on public finances India is seeking increases in private funding solutions in the provision of much of the new infrastructure needed.Japan is expected to see sizable increases in construction spending through to 2015 as the earthquake/tsunami re-construction effort gathers pace. However, the re-construction is only expected to provide a short-term spike in construction activity which is likely to return to trend later in the decade.

EuropeSovereign debt crises and the uncertainty in the Eurozone are continuing to constrain construction spending growth in many Western European markets. Only the Scandinavian counties are likely to be largely immune from the impacts. Infrastructure construction is expected to see declines through to 2015 with only limited growth forecast in both non-residential and residential construction spending. Austerity measures in many Western European countries have focused on the

postponement/cancellation of many planned infrastructure projects.

The fastest growing countries in Western Europe through 2012 are expected to be Germany (+1.8%) and the UK (+1.6%). Ireland, Spain, Portugal, Italy and Greece are likely to experience continuing declines in construction spending through to 2015, with little optimism about growth later in the decade. Indeed through to 2015, their share of the Western European market is expected to decline significantly (by as much as 10%) while growth in the remaining countries remains largely stagnant. It is likely that it will be 2020 before the market in Western Europe returns to output levels last seen in 2007.

In Eastern Europe there is a more positive picture of construction spending growth through to 2015. However, it should be noted that these markets are significantly smaller in terms of volume than those in Western Europe. The fastest growing sector is forecast to be the non-residential sector closely followed by infrastructure.

The fastest growing countries in Eastern Europe through 2012 are expected to be Poland (+9.1%) followed by Russia (+6.5%) and Turkey (+5.5%), all with growth levels significantly above the average for the region as a whole.

Middle EastIn the Middle East, moderate construction spending growth (+4.2%) is expected through 2012. Much of the growth will be led by increases in infrastructure construction spending, in particular energy infrastructure.

Saudi Arabia, the largest market in the region, is also expected to lead much of the growth in the region (+5% pa) through to 2015. Followed by a return to growth in the UAE (+4% pa) much of which will be led by Abu Dhabi rather than Dubai which remains subdued and is largely expected to remain that way through the forecast period.

Preparation for the FIFA World Cup 2022 and upgrading of associated infrastructure is expected to make construction spending growth in Qatar amongst the fastest in the world throughout the next decade.

AfricaFollowing the recent turmoil in much of North Africa construction spending remains constrained, although there are expected to be significant opportunities going forward. In particular, re-construction in Libya and infrastructure upgrades in Egypt are likely to act as a stimulus for the region through to 2015. However, much of this has yet to materialise given the ongoing uncertainty in the region.

In the rest of the region there is a mixed picture emerging, with some areas of strong growth particularly Nigeria (+8%) with continuing declines in others, particularly South Africa. Infrastructure construction is forecast

Geographies | 35

David Crosthwaite Davis Langdon, London, an AECOM company.

Page 39: Davis Langdon Review 2012

to be the fastest growing sector of construction output through to 2015.

The AmericasConstruction spending continues to be constrained in the US, largely as a result of the housing crisis and the impending election. The construction market in the US is expected to remain stagnant through 2012, with little or no growth forecast, much like construction spending in Western Europe. Some growth is expected in Canada and Mexico although the problems in the US are expected to constrain growth in both markets through to 2015.

In contrast much of South America is expected to see significant growth in construction spending through 2012. In particular the larger markets of Brazil, Argentina and Chile are forecast to see construction growth of over 5% through 2012. Indeed, Brazil and Panama are likely to have construction spending growth of over 10% pa through to 2015, significantly above the average for the region as a whole. Much of the growth in South America will be led by increases in infrastructure spending (particularly energy and transportation) closely followed by spending on non-residential structures.

In Brazil, preparations for the 2014 FIFA World Cup and the 2016 Rio Olympics are well advanced and increases in construction spending are largely being led by infrastructure upgrades.

AustralasiaConstruction spending in Australia is expected to grow by close to 5% in 2012, boosted by the global demand for natural resources. Similarly, construction spending in New Zealand is forecast to rise as earthquake re-construction moves forward through to 2015.

General OutlookIn the short term there is expected to be a degree of stagnation in global construction spending through 2012, with more sustained growth not expected until 2015 onwards. Developing countries are expected to lead any growth through 2012. The strongest construction spending growth will again be in China, followed by India and Indonesia.

Going forward the outlook for global construction is likely to be dictated by development status. Generally, the share of global construction spending continues to shift from developed country markets to developing country markets (Figure 8). In particular, the Asian market has increased from a share of 31% in 2005 to a forecast share of 46% by 2020. This shift is largely at the expense of decline in the Western Europe market which has shrunk from a share of 35% in 2005 to a forecast share of 24% in 2020.

David CrosthwaiteDavis Langdon, an AECOM company

AsiaWestern EuropeNorth AmericaEastern Europe

Latin AmericaMiddle eastAfrica

2020

31%

34%

25%

4%3%

2%1%

46%

24%

17%

5%4% 2% 2%

36 | Geographies

Figure 8 : Global Construction Spending

Page 40: Davis Langdon Review 2012

2016 Olympic Park, Rio de Janeiro, Brazil.(image courtesy of AECOM)

Page 41: Davis Langdon Review 2012

Technical Data

KnowledgeKnowledge

University of Limerick - Pavilion, Limerick.(image courtesy of Donal Murphy Photography)

Page 42: Davis Langdon Review 2012

€ per square metre

Healthcare Hospitals 1,600 2,500 Primary Care Centres 1,400 1,800 Nursing Homes 1,400 2,000 Education Primary Schools 930 1,100 Secondary Schools 930 1,100 Third Level 1,350 2,500 Commercial Offices - Shell & Core (Landlord Fit-Out) 1,300 1,900 - Owner Occupied 1,500 2,400 Offices Fit-Out - Basic 300 450 - Medium 450 700 - High 700 1,050 - Top 1,050 1,800 Shopping Centres - Shell & Core 600 1,000 - Mall 1,300 2,400 - Fit-Out 850 1,400 Residential Apartments 1,200 1,600 Apartments (12-16 storey) 1,500 1,950 Social Housing 850 1,250 Sheltered Housing 950 1,450 Housing (Suburban Housing) 800 1,000 Industrial Warehouse/Factory Shell 550 650 Factory (Basic) 650 900 High Spec Factory - Shell & Core 850 1,200 - Fit-Out 650 1,100 Leisure Cinema 1,500 2,100 Hotels - 3/4 star 1,300 1,950 - 5 star 1,950 3,000 Swimming pool (60% wet & 40% dry) 1,600 2,100

Car Parks Surface (including drainage & lighting) 100 210Multi-Storey 350 600 Single Basement 500 800 Double Basement 700 1,100

Public Buildings Fire Station 1350 1650Prison 1850 2500Courthouse 1650 2050

Technical Data | 39

Indicative Building Costs

The figures quoted are for mid-range buildings in the Dublin area at January 2012 prices. Due to the volatile nature of the current market and the low tenders being received, it is possible that tenders will be received outside of these ranges. Professional advice should be sought for specific projects.

The Davis Langdon indicative building costs should NOT be used for fire insurance valuations or for residual valuations for funding purposes.

If you require a valuation for fire insurance or more specific information, please contact Davis Langdon.

When considering building costs you should check if costs include:

- Value Added Tax- Professional Fees- Inflation- Fit-Out- Landlord Fit Out/Landlord Credits- Furniture- Planning Levies, Fees & Charges- Demolition- Abnormal Ground Conditions

Page 43: Davis Langdon Review 2012

40 | Introduction

Key Performance Bond Actions

Summary of Key Performance Bond Actions

Unfortunately, the focus on performance bonds has increased dramatically in recent years due to market forces. Broadly, a performance bond is a “contract of guarantee” whereby one party (the guarantor (the bond provider) undertakes to pay damages to a second party (the employer) arising from breach of contract by a third party (the contractor). Set out below is a checklist of actions in acquiring and calling in a bond.

Ref Description Checklist

1.0 Pre-Tender 1.1 Agree bond parameters with client (value, duration etc) 1.2 Seek bond co. confirmation of availability at pre-qualification stage 1.3 Issue bond wording with tender documents 2.0 Post-Tender/Pre-Contract 2.1 Request bond to be provided as part of letter of intent 2.2 Respond to bond co. questionnaire

3.0 Post-Contract 3.1 Notify Bond co. immediately upon a default event (typically insolvency) 3.2 Actively engage with bond co. 3.3 Invite bond co. to visit site to make their own cost assessment of works 3.4 Advise bond co. of your proposed process for appointment of replacement 3.5 Agree protocols for managing tender process 3.6 Other 4.0 Submission of Claim 4.1 Notify bond co. immediately upon a default event (typically insolvency) 4.2 Actively engage with bond co. 4.3 Submit termination valuation 4.4 Invite bond co. to visit site to make their own cost assessment of Works 4.5 Submit claim on completion (see sample heads of claim opposite)

Ref Description Checklist

5.0 Typical Heads of Claim for Submission to Bond co. 5.1 Procurement & Construction 5.11 Cost of re-tendering process 5.12 Any premium arising from cost of replacement contractor 5.13 Other 5.2 Professional Fees 5.21 Design team 5.22 Legal fees 5.23 Other 5.3 Client Direct Costs 5.31 Client direct staff costs 5.32 Any additional financing costs 5.33 Insurance costs post default 5.34 Other 5.4 Security/Health & Safety 5.41 Any security required post-default 5.42 Any emergency H&S works carried out post default 5.43 Other

Please contact Anthony McDermott for further [email protected]

40 | Technical Data

Page 44: Davis Langdon Review 2012

Technical Data | 41

Project Planning Checklist

Checklists are perhaps the simplest and most productive means of building consistency in work practices. In this project planning checklist, we summarise a high-level twelve point checklist of important project planning steps to help you pave the way to successful project management.

An experienced project manager will assist you through these stages, with development of a project management plan capturing planning strategy, execution strategy and project management techniques that address items 1 to 9 below thus creating a platform for successful project management and delivery.

Ref Description Checklist

1. Agree justification for the project, including appraisal of business case, commercial viability and technical feasibility checks

2. Establish project governance at the onset such as compliance with EU regulations, national or corporate guidelines/governance relating to procurement or contractual requirement

3. Identify all stakeholder and instil a management plan to identify and manage their requirements and concerns throughout the project lifecycle

4. Define and agreed project organisational structure, communication and reporting strategy, roles and responsibilities

5. Generate definitive brief that defines the scope, overall programme, available budget, quality standards, project deliverables, success criteria and mission statement/project charter

6. Establish appropriate ‘gateways’ for design to pass to confirm compliance with definitive brief requirements

Ref Description Checklist

7. Establish and implement change control procedure

8. Plan for risk management and value management at appropriate stages/gateways

9. Identify and procure the disciplines and specialisations that will be required on the project including consultants (design, quantity surveying, legal, planning advisors, etc.), works contractors of suppliers

10. Obtain sign-off on the definitive brief from the relevant stakeholders and acceptance from the appointed consultant to deliver same

11. Ensure an experienced project manager/project coordinator is acting on your behalf during the delivery stage to ensure compliance with project objectives and manage day-to-day issues that may arise

12. Undertake a project review at completion to establish lessons learned, etc.

Page 45: Davis Langdon Review 2012

42 | Technical Data

University of Limerick - Pavilion, Limerick.(image courtesy of Donal Murphy Photography)

Page 46: Davis Langdon Review 2012

Technical Data | 43

Development Budget Checklist

It is critical in establishing a development budget to adopt a methodical approach and to ensure those conducting the exercise have the experience and database of relevant information to establish a realistic budget. A sample of the principal budget headings are listed in the Table below.

Sales Revenues

Letting Revenues

Summary of Development Budget Checklist

Ref Description Checklist

1.0 Land Purchase 1.1 Site cost 1.2 Stamp duty 1.3 Legal costs 1.4 Agent’s fees 1.5 Finance costs 1.6 Arrangement fees 1.7 Other 2.0 Stat. Fees & Contributions2.1 Planning fees 2.2 Fire certification 2.3 Planning contributions 2.4 Infrastructure 2.5 Infrastructure apportionment 2.6 Works to adjacent properties 2.7 Land remediation 2.8 Costs to date 2.9 Other 3.0 Construction Costs3.1 Construction cost estimate 3.2 Inflation/deflation 3.3 Costs to date 3.4 Phasing costs 3.5 Owner insurances 3.6 Other

Ref Description Checklist

4.0 Professional Fees 4.1 Project manager 4.2 Concept architect 4.3 Masterplanning 4.4 Architect 4.5 Quantity surveyor 4.6 Structural engineer 4.7 Civil engineer 4.8 Services engineer 4.9 Health & safety consultant 4.10 Planning consultant 4.11 Fire consultant 4.12 Traffic consultant 4.13 Facade Cconsultant 4.14 Landscape architect 4.15 Employers representative 4.16 Acoustic consultant 4.17 Environmental engineer 4.18 Archaeologist 4.19 Resident engineer 4.20 Site survey 4.21 Structural survey 4.22 Photographic survey 4.23 Contamination survey 4.24 Other

Ref Description Checklist

5.0 Selling & Letting Costs 5.1 Agents 5.2 Legal’s 5.3 Marketing costs 5.4 Mock-Up units 5.5 Model 5.6 Photographic 5.7 Site boards 5.8 Pre-Opening costs 5.9 Tenant incentives 5.10 Tenant enhancements 5.11 Other 6.0 Financing 6.1 Equity 6.2 Senior debt 6.3 Mezzanine debt 6.4 Arrangement fees 6.5 Due diligence 6.6 Other 7.0 Miscellaneous 7.1 Developers management fee 7.2 Tax Advice/accounting 7.3 Adjoining neighbours 7.4 Contingency 7.5 Other

Page 47: Davis Langdon Review 2012

Davis Langdon News

PerformancePerformance

Highfi eld Hospital, Dublin.

Page 48: Davis Langdon Review 2012

Davis Langdon News | 45

Charity at workOur annual get together this year was made all the more inviting by the baking skills of our staff. All proceeds went to Cancer Ireland . The event was held in conjunction with AECOM offices throughout the UK, who raised money in aid of Macmillan Cancer Support. Davis Langdon proceeds went to Cancer Ireland

Public Sector WorkshopDavis Langdon held a public workshop in April, attended by the various stakeholders in the industry. Healthy debate ensued amongst the hundred or so guests as the tough challenges in the industry were deliberated. This workshop was to provide an opportunity to discuss some of the key issues and opportunities in the delivery of the public sector capital programme.

PromotionsWe are delighted to announce that we made two promotions within our management team this year.

Jason Hobson Shaw, who has been with us since 1998, was made a Regional Director and is based in the Dublin office. Jason, who spent a number of years working in Australia and the Far East, leads our healthcare team.

Declan Hegarty, who joined in 2006, has been promoted to Associate in our Dublin office. Declan has a wide range of commercial experience having delivered the €200 million Grand Canal Theatre and is currently delivering the Grangegorman HSE facility and the Grand Canal Dock Hotel.

Jason Hobson Shaw Declan Hegarty

Page 49: Davis Langdon Review 2012

46 | Davis Langdon People

Davis Langdon People

Paul [email protected]+ 353 1 4320460

Mark [email protected]+ 353 1 4320438

John O’ReganDirectorjohn.o’[email protected]+ 353 91 530199

Cathal BarryRegional [email protected]+ 353 61 318870

Andrew [email protected]+ 353 61 318870

Declan [email protected]+ 353 1 4320465

Tomás KellyRegional [email protected]+ 353 91 530199

David [email protected]+ 353 21 436 5006

Anthony McDermottRegional [email protected]+ 353 1 4320481

Jason Hobson-ShawRegional [email protected]+ 353 1 4320434

Neil [email protected]+ 353 1 4320478

Gregory FlynnRegional [email protected]+ 353 1 4320498

John [email protected]+ 353 1 4320413

Stuart [email protected]+ 353 21 436 5006

Eoin [email protected]+ 353 1 4320404

Page 50: Davis Langdon Review 2012

National University of Ireland, Galway - New Engineering Building, Galway.(image courtesy of Neil Warner Photography)Davis Langdon People | 47

The Great Western Greenway, Mayo. (image courtesy of Mayo County Council and Michael McLaughlin Photography)

Highfield Hospital, Dublin.

Page 51: Davis Langdon Review 2012

48 | Davis Langdon

This page and Cover

University College Dublin - Student Learning, Leisure & Sports Facility, Dublin.(images courtesy of Donal Murphy Photography)

Page 52: Davis Langdon Review 2012

Program, Cost, Consultancy

www.davislangdon.com www.aecom.com

About AECOM

AECOM is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. With approximately 45,000 employees around the world, AECOM is a leader in all of the key markets that it serves. AECOM provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the world’s built, natural and social environments. A Fortune 500 company, AECOM serves clients in more than 130 countries and has annual revenue in excess of $8.0 billion.

More information on AECOM and its services can be found at www.aecom.com.

Designed and delivered by Baseline CS Ireland

Key offices in Ireland

Davis Langdon, an AECOM Company Dublin Office24 Lower Hatch Street Dublin 2T: 353 1 676 3671 F: 353 1 676 3672 E: [email protected]

Davis Langdon, an AECOM Company Galway OfficeHeritage HallKirwan’s LaneGalwayT: 353 91 530 199F: 353 91 530 198E: john.o’[email protected]

Davis Langdon, an AECOM Company Limerick OfficeMezzanine SuiteRiverpointLower Mallow StreetLimerickT: 353 61 318 870F: 353 61 318 871E: [email protected]

Davis Langdon, an AECOM Company Cork OfficeDouglas Business CentreCarrigaline RoadDouglasCorkT: 353 21 436 5006F: 353 21 436 5160E: [email protected]