This time last year, construction firms and developers across the Channel Islands were expressing optimism for the year ahead. Twelve months on, Kirsten Morel examines whether that confidence was warranted
When you take a look at the construction sectors in Guernsey and Jersey, it"s hard to ignore the obvious - the two islands look set to have very different experiences in 2015.
Just 12 months ago, there was confidence in the air in Guernsey as construction firms and developers enjoyed knowing that there were a number of projects on the go or about to get started. Importantly, these were mixed projects that included commercial and residential units, and they had their funding provided by both public and private sources.
In the public sector, the final phase of the Princess Elizabeth Hospital refurbishment was getting underway, and there was an expectation that the Mare de Carteret High School redevelopment would kick in shortly afterwards. The Guernsey Housing Association was looking to develop up to five new sites, the development of Admiral Park"s residential units was in full swing, and, on the commercial front, there was activity on the old GT Cars site that would become, among other things, a supermarket for the Channel Islands Co-operative Society.
Today, the Mare de Carteret project has stalled following an intervention by the States Assembly, which voted for a value-for-money review. The GT Cars site, being developed by Comprop, is one of the few commercial schemes in Guernsey, and is proceeding well. The Cour du Park £6 million redevelopment is now occupied (creating 50 flats from an existing building), and the Guernsey Housing Association is continuing to develop the remaining sites it has.
However, Jason Powers, Director at Guernsey-based construction and property consultants NorthGates, believes the association is having trouble finding land for further projects. “The Guernsey Housing Association has limited future sites. They are very effective at delivering projects and therefore the government needs to continue to release land for this sector of housing demand.”
The frustration with Guernsey"s stalling property sector is discernible, and on the commercial side there is an imbalance in supply that"s clearly affecting prices.
In both Bailiwicks, prime commercial office space is holding firm at around £32 to £35 per sqft, but as Jonathan Anderson, Senior Associate at law firm Carey Olsen, points out: “The difference between grade A, B and C space is colossal in Guernsey, and while rents are standing up for A, that"s not the same for B and C where it"s definitely a tenants" market. Grade A stock is probably at full tenancy, and the fact that rents are standing up suggests that there isn"t enough good space.”
Mixed messages
Across the water in Jersey, there"s a sense that a corner has been turned in the construction sector and although there"s still caution, the outlook within the industry is more positive.
“It"s still not easy, but I expect 2015 to be an improvement on 2014, which was already better than the year before,” says Julie Melia, Partner at law firm Ogier.
Similar sentiments are echoed throughout the sector. Chris Daniels, Consultant at BNP Paribas Real Estate in Jersey, says: “In terms of take up of office space, we"re getting back to 2006/07 levels and enquiry levels have almost doubled from 2013 to 2014.”
Yet the story here is also is one of imbalance - the islands aren"t catering adequately for the top end in the commercial sector, and construction or refurbishment is the only way to change this. However, at the lower end, there is over supply, which suggests landlords either need to upgrade, or, as many small businesses will testify, decrease rents to levels that SMEs can cope with.
It"s clear, however, that companies are on the move in Jersey, bolstered by confidence in the island"s economy, and by public statements of commitment to the island by major firms such as RBSI.
Certainly, Jersey"s "to do" list is looking longer than Guernsey"s in terms of commercial, residential and public sector development. On the public side, work has started on a £21 million police station in St Helier, and at the end of 2014 the States of Jersey issued its first bond - a £250 million note that will be used for social housing.
The main beneficiary will be Andium Homes, a government-owned company charged with developing public land for social housing. They"re finishing 23 units at Le Coin in St Helier and with a remit that includes maintenance and refurbishment as well as new development, the company has budgeted to spend more than £46 million during 2015 - about half of this is on new build including 21 homes at Le Squez, and the rest is split between refurbishment projects and the ongoing drive to bring all of the company"s stock up to the Decent Homes Standard.
On the private development front, construction of Dandara"s high-density housing scheme at Westmount in St Helier continues, and the firm is developing new offices for the Royal Bank of Canada on the Esplanade, the heart of Jersey"s new business district. At the same time, Comprop"s £8 million Weighbridge Place development will continue throughout the year, delivering a bar/brasserie and four floors of office space by the end of 2015.
While construction activity is on the rise in Jersey, there"s no indication that the commercial property market is being swamped - and, certainly at the top end, demand outstrips supply.
“We"ve identified around 350,000 sqft of potential demand up to 2020,” says Chris Daniels. “If all of the first phase of the Jersey International Finance Centre gets delivered, it could cater for new demand, but as long as that scheme is in limbo, it affects rival developers who don"t want to commit until they know what"s going on.”
Of course, when demand outstrips supply prices go up, and Chris Daniels sees this happening already. “At the prime level, because of a lack of supply, we"re starting to see growth. In the older stock, rents have been stagnant.”
All in the planning
There"s no single reason for the contrast between the two islands" fortunes. Marc Burton, Managing Director of Jersey-based construction firm Camerons, suggests that the islands" construction industries tend to run counter-cyclically, so when one is doing well, the other tends to be quieter. This has certainly been the case during a recession that started well for Guernsey (the island actually never entered an official recession) but looks like ending better for Jersey.
When it comes to encouraging development, industry players are often quick to point the finger at planning departments, but while there are still problems, there"s a sense in Jersey that the planning department is awake to what"s needed.
“Planning has improved in the last 12 months,” says Burton. “The department has improved its pre-application advice, and the new planning minister appears to have a common-sense approach.”
However, such improvements don"t mean politics has taken a back seat in Jersey. The recent Port Galots proposal for a mixed-use facility on the perimeter of Jersey"s harbour was defeated by a determined group of islanders, and the Jersey International Finance Centre is yet to get started, despite reported interest from a number of tenants. The latest delay is being caused by a political review of the project.
In Guernsey, the planning process is still very much under the spotlight, and with a planning review scheduled in 2015, Jonathan Anderson sees its role as crucial in turning around the construction industry"s fortunes. “Industry is highly critical, and changes to the planning law are vital to maintain the vitality of the industry,” he says.
There are other areas in which the island"s policies diverge, and again it"s the case that people in Guernsey are wondering whether they should be looking to follow Jersey"s lead.
“In Guernsey, there"s a need to actively promote and encourage high-net-worth individuals (HNWIs) to relocate and invest in the island,” says Jason Powers. “Jersey is well ahead of Guernsey with the success of its Locate Jersey initiative [attracting inward investment and new HNWIs]. 2015 is looking to be a tough year for the local construction industry. With very competitive tendering occurring, it is a good time for investors and government to undertake projects”
The Open Market sector is particularly important in Guernsey because it enables HNWIs to relocate to the island. “The government needs to promote, maintain and reinvigorate this sector for the benefit of the economy and all islanders,” says Powers.
Juxtaposed with this lack of inward investment in Guernsey is the growth of new names and expansion of existing ones in Jersey.
“Next, de Gruchy, Premier Inn and the Co-op are names that people recognise, and when they want to do business here it gives people confidence,” says Julie Melia pointing to a number of major projects in St Helier set to start during the next 12 months.
As construction takes off in Jersey, the risk moves away from demand and onto supply. This means having the labour force to deliver, which is something the Jersey Construction Council (JeCC) has identified and is tackling, according to Burton, who is also a JeCC board member.
“The JeCC has brought the issue of a skills shortage to the attention of the island,” he says. “This is positive because it gives us time to prepare. The important message is that the work must not stop - we will fill the gap. We"ve drafted a new construction skills strategy that will help us continue to manage the skills needs on a short-, medium- and long-term basis.”
As unwanted as a skills shortage may be, it does help prove the Jersey government"s point that a vibrant construction industry helps the island economy overall. As the island continues to fight unemployment, the industry is working with the States of Jersey"s "Back to Work" and "Trackers" schemes to bring unemployed people into the industry, helping put not just the sector but the whole island back on track.
Guernsey"s malaise may prove to be just a cyclical problem, but to ensure it doesn"t worsen, there is merit in the island"s leaders looking to Jersey to see how they can breathe life back into construction - and therefore the economy as a whole.
The experts say…
“Industry is highly critical, and changes to the planning law are vital to maintain the vitality of the industry”
Jonathan Anderson, Senior Associate, Carey Olsen
“If all of the first phase of the Jersey International Finance Centre gets delivered, it could cater for new demand. But as long as that scheme is in limbo, it affects rival developers who don"t want to commit until they know what"s going on”
Chris Daniels, Consultant, BNP Paribas Real Estate
“Next, de Gruchy, Premier Inn and the Co-op are names that people recognise and when they want to do business here, it gives people confidence”
Julie Melia, Partner, Ogier