Construction has had a torrid time in recent years, but Martin Holmes, Chairman of the JeCC, tells Nick Kirby things may finally be on the up
Construction has been Martin Holmes’s life for more than 30 years. Having gained an honours degree in quantity surveying from Trent Polytechnic in 1981, he has been in the industry ever since. In the last three decades he’s put in the hard graft – not least having worked on several sections of the M25. He arrived in Jersey in 2001 and is currently the CEO of Camerons – he’s also on the board of its parent company, the Garenne Group, which has operations in Jersey, Guernsey and the UK, and comprises construction, development and investment companies and activities in commercial, residential and public sectors.
To top it all off, he’s been the Chairman of the Jersey Construction Council (JeCC) for over six years, and sits on the Jersey Chamber of Commerce Building and Development sub-committee. As such, he’s perfectly positioned to give a view of the current state of construction in the Channel Islands, and he spoke to businesslife.co about the challenges the industry has faced and how 2014 may see a return to prosperity.
Let’s start with the most obvious question – has the construction industry recovered from the aftershocks of the recession or are they still being felt?
Oh there’s no doubt they are still being felt. Confidence has been affected across all sectors – be that commercial, residential, construction, investment or development. Investors seem to have been playing a ‘wait and see’ game, developers have been wary of building speculatively, funding has been very tight, there’s been job uncertainty and reduced mortgage lending has had an impact. There isn’t one area that hasn’t been affected and where the effects are still being felt. That said, I do believe that we are at the point where things are starting to improve and we can truly begin to look forward.
Can you expand on a few of those points for us?
Let’s take development and bank funding, in Jersey specifically. We’ve got an interesting situation where we have a lot of commercial redevelopment office space that already has planning permission – existing facilities that can be demolished and rebuilt – yet none of it is being developed at the moment. The reality is that funding is difficult.
Loan-to-value ratios have decreased, which means developers have to commit more of their own capital to schemes. Meanwhile, many funders are only happy to lend on the basis that you have a binding pre-let agreement with a tenant, so that they minimise their funding risk. Tenants, however, are nervous about committing to new leases in uncertain times. Yes, there have been some notable moves, but that is into offices that are already built.
Through the financial crisis some of the decision-making was relocated from some of the financial institutions in the Channel Islands back to HQs in the UK, so we lost an element of local context and understanding. There was a moratorium on spending, and there was also the question of perception – was it the right message for a bank to be seen to be moving into a plush new office? So a lot of people retrenched and said ‘we’re going to have to ride this one out’.
So with limited speculative office development of any significance, there is currently no high-quality office accommodation available that’s really fit for purpose for the next 20 to 25 years for the finance sector. It’s especially an issue when you have the likes of Locate Jersey going out there, trying to get inward investment into the island and find that prospective new businesses love the offering, but where do they put their staff?
It’s classic Catch 22. In uncertain times, it’s quite a bold tenant that actually signs up to an unbuilt office. The advantage of getting in at the early stage for big operators is that they can tailor their space – but for smaller operators looking at 10,000sqft, it’s a bit of a leap.
There are exceptions, of course. The developer Dandara, for instance, got one floor away at 37 Esplanade and then decided to build the rest speculatively, and it’s now full. Someone has to be brave enough to stick their neck out. Such decisions require confidence in the marketplace, and it’s encouraging to see, for example, Comprop committing to the redevelopment of the Southampton Hotel site in St Helier.
Did the recession affect Jersey and Guernsey differently?
As I’m based in Jersey, I’m better placed to comment on the effects here, which have been significant, whereas in Guernsey the effect seems to have been less dramatic. We meet as colleagues on the Garenne board and we have this debate on why things don’t seem as bad in Guernsey, and no-one can put their finger on a key reason. It seems to me, though, that in Guernsey the approach has been ‘lets get on with it’, while Jersey was more cautious. Certainly throughout this whole period, the feel of Guernsey was less negative than Jersey. It was almost as if Jersey talked itself into agreeing the recession was really bad, whereas Guernsey said ‘let’s carry on doing what we were doing and see what happens’.
Compared to the UK, was construction in the Channel Islands as affected by the global downturn?
No, I’d say it wasn’t as badly affected as the UK. The Channel Islands seem to lag the UK in the economic cycle by 12 to 18 months. Our UK businesses saw a significant fall in activity in their respective marketplace some time before we saw any corresponding drop off in Channel Island business.
I’m not sure anybody saw the speed of the recession and forecast its severity and longevity, but this lag meant we were able to look at some things that were happening in the UK and prepare ourselves and develop strategies for when it caught up in the Channel Islands.
It’s also worth highlighting the fact that the relatively strong economic position of both jurisdictions resulted in a noticeably smaller impact on the industry.
That said, Jersey has seen a nine per cent fall in the labour force from the peak levels in June 2010, which equates to around 510 jobs lost. And seeing as the construction industry represents nine per cent of the island’s workforce, this is a significant factor in the economic activity of the island, and one that will need to be considered carefully as the industry recovers.
On a more positive note, you mentioned that things seem to be looking up – what gives you cause for that optimism?
I think it’s important to say from the outset that any turnaround is actually in its early stages, but there are a number of positive indicators.
On the ground, in both islands, for instance, if you talk to design teams – who are the start of the process as far as we’re concerned as constructors – they’re getting a lot busier.
Then there is anecdotal evidence. The September 2013 Business Tendency Survey in Jersey showed all construction indicators worsening or at the previously recorded negative levels, with Business Activity and New Business opportunities showing the greatest decline. However, in the December 2013 Survey, the construction industry saw seven out of 10 indicators showing significant improvement. What’s more, Business Optimism and New Business Activity were both positive for the first time in four years.
Furthermore, the Jersey Capital Expenditure programme, which was agreed in the Jersey Budget in November last year, has a major construction programme planned to be carried out over the next six to 10 years. So you should see confidence improve even more once the individual projects hit contractors’ order books.
Against this improving backdrop, what are the biggest challenges facing the industry in the short, medium and long term?
Getting the schemes that are currently in the design and planning stages up and running is vital. And for Jersey in particular, it’s key the allocated capital on States projects is spent when it is intended to be.
The industry needs certainty to operate efficiently and cost effectively, and to have the confidence to invest and innovate.
Allocated capital has to make its way through the system and become a ‘shovel ready’ project as quickly as possible. At the JeCC, we are working with the States to try and work out quite why it takes so long to get from A to B. If we can make that more efficient then we’ve got a better chance of spending the money in a timely fashion, so we can provide the much-needed infrastructure improvements for the benefit of our communities at the earliest opportunity.
In the long term, the industry in both islands has to generate investment in training, skills development and innovation, and to make sure that we keep work local. We also need to make sure the work remains steady so it doesn’t turn into a ‘feast or famine’ situation. Regular, ongoing projects equal a sustainable industry.
Is that the key to the continued success of construction in the Channel Islands?
Absolutely! There are some significant schemes that are coming up in both islands, but we must make sure we use these projects to develop good-quality training programmes to upskill our industry for the future, and to hopefully create a sustainable career path for employees with a steady stream of work. There’s no point in training 40 apprentices if there is no work.
Our industry provides unique and exciting career opportunities in everything from design and engineering, financial control and project management to construction with its associated craft and trade skills. The JeCC is undertaking a lot of work in conjunction with multiple government bodies, such as the Skills Executive, Back to Work and the local education providers, to promote our industry and ensure that we have highly skilled capacity for the future.
A misconception of our industry is that every time a job starts, a load of people arrive on the boat, hang around for a couple of years, and then leave. This doesn’t happen. Ninety-five per cent of our industry is locally qualified in employment terms, having been in the island for five years or more. That’s a really high percentage and they have a very important part to play being nine per cent of the work force.
As someone who has a foot on both islands, do you find that one government is more supportive of construction than the other?
That’s a tricky one! I get the impression, and this is anecdotally from developers who work in both islands, that Guernsey is more proactive and accommodating in planning terms, and is cheaper. The States acts almost as a development ‘enabler’, effectively asking ‘how can we help you make this happen?’.
While I appreciate that planning is a very emotive issue and it’s inevitable that certain people’s views will be compromised in any decision, it seems to me there’s more of a collective will to make things happen for the benefit of the island in Guernsey. Jersey tends to be more process driven, where the thinking seems to be: ‘We have an Island Plan, which is the planning framework, and you need to meet criteria X, Y and Z’.
I take the view that an important role of planning policy should be as an economic enabler, and I’m not convinced that this has taken a high enough priority in Jersey in recent times
The JeCC, as the collective voice of the industry, has established a good working relationship with government, and I believe our campaigning over the last two years with the States has improved their understanding of how important our industry is to the economic wellbeing of the island, because of the number of people we employ, and the multiplier effect of a pound spent in construction and how it cascades throughout the economy.
The Housing Fund launched by the States of Jersey (to the tune of £250 million) has been criticised in some quarters because the government is effectively borrowing money. What’s your take on that?
I’m not an expert of infrastructure funding, but borrowing effectively to allow a key strategic aim to be delivered – namely the Decent Homes initiative – seems an entirely appropriate solution given current borrowing rates and the fact that it’s secured against a long-term asset value and repaid via a known rental stream.
I remember that the government was equally criticised for funding the new Energy from Waste plant at La Collette from the current account – I guess you will never satisfy everybody.
And what is your view on the States of Jersey acting as a property developer through its Development Company? Will this affect the private sector?
Clearly the SOJDC is now competing with the private sector, but this is an inevitable consequence of the decision by the States to establish the SOJDC to develop out redundant assets. And the States has a lot of assets, so surely it’s best for the public of Jersey that the most is made of them? If that means they develop it themselves through a vehicle for that specific purpose to retain developers’ profit or maximise social return, then I don’t have a problem with it.
From an industry perspective, this is without doubt an important potential workstream, and my biggest concern is that political interference in every project the SOJDC attempts to deliver will create unhelpful delay and disruption to much-needed infrastructure projects.
But what about the risk that they will employ UK companies rather than use local firms?
The JeCC has lobbied hard to promote local industry, and the States has responded with commitments to support the industry wherever they possibly can. Admittedly, major projects such as the hospital may require some off-island involvement, but I’d hope that it would be through a joint-venture arrangement with local businesses.
This has worked well in the past on projects such as the Energy from Waste project, where Camerons was instrumental in adding a vital local context to the delivery of the scheme. If managed correctly, this will have the potential benefit of upskilling the local industry
Of course, it’s now incumbent on local industry to work with government to make sure they’re good to their word. Conversely, industry has to make sure it has the facilities to service all the work. There are actions for both sides.
Finance aside, construction is arguably the most important sector when it comes to boosting the economies of the islands – is there something that could be done to make life easier for the industry?
Put simply, we need confidence, certainty and speed of decision-making and delivery from all parties involved in the construction and development process. Many of the foundations for a successful future have been laid over the last year, and with growing confidence that we are emerging from the recession, it’s now time to stop debating and start building.
How confident do you feel about the future of construction in the Channel Islands?
I feel much more confident now than I did 12 months ago. For both islands, things are looking better than they have done.
I do have a slight concern that this is an election year in Jersey, and I hope that we don’t waste six months in negative electioneering creating bureaucratic inertia. If people can move forward positively then industry across both islands should have the certainty of a sustainable future for a 10-year period.
In construction, they say you can tell the strength of the economy by the number of tower cranes you can count. For the last couple of years they’ve been sadly lacking, but I look forward to that position changing positively over the next 12 months.