Slowing growth in construction workloads

HWDN, DLN | Economics – Slowing growth in construction workloads | News – 71% of landlords could face energy efficiency crunch

Company news

Howden Joinery Group (HWDN, 519p, £2,882m mkt cap)

UK’s largest supplier of kitchens and joinery products to trade customers, primarily small local builders.
Trading update, 11 June – 29 October (‘periods 7-11’). Guidance: “Given the continued momentum in the
period, the group now expects profit before tax to be marginally ahead of the average of published analyst
consensus forecasts for FY 22”. Trading: UK – Rev +6.6%, p7-11 (+4.5% LFL); +13.6% LFL, H1 (p1-6); +8.4% LFL,
p1-11. International – +24.5%, p7-11 (+15.7% LFL); +18.5% LFL, H1 (p1-6); +19.0% LFL, p1-11. “Howdens
achieved a record performance in our important peak trading period. We continued to gain market share
supporting our customers with a strong product line-up, high stock availability and outstanding service. Trade
customers have remained busy into the Autumn with a good pipeline of work, as consumers continue to invest
in and improve their homes”. By the end of the period, 17 new UK and 13 French depots have been opened
and 64 older UK depots have been refurbished. New product introductions for 2022 included 23 new kitchen
ranges which were on sale ahead of the peak trading period. Outlook: “We are continuing to invest in
expanding our manufacturing and supply chain capabilities. Digital investments continue to support our trade
customers and improve productivity”. FY results, 23 February.

Derwent London (DLN, 2,224p, £2,497m)

Real estate investment trust owning commercial portfolio predominantly in central London. Q3 (Sep) business
update. Portfolio: Lettings in first 9 months, £9.0m, 13% above Dec 21, with a further £1.1m of rent under;
£1.9m of lettings in Q3, 28% above December. Vacancy rate, 6.9% (Jun, 6.5%). Disposals in Q3, £139m,
(£205m, YTD). West End developments – 435,000 sq ft underway; sub- and super-structure works progressing
well at 25 Baker Street (298,000 sq ft); works commenced on-site in June 2022 at Network W1 (137,000 sq ft).
Financing: EPRA LTV, 21.7%1 (Jun, 23.7%) after receipt of Q3 disposal proceeds; undrawn facilities and cash of
£626m as at 30 September 2022. Outlook: “Occupier demand in London remains good for the right product
and the flight to quality continues. We have a strong balance sheet and with disposal proceeds in the year to
date, we are reinvesting in two distinctive West End developments where supply remains constrained”.

Economic data

Construction workload continued to rise in Q3 albeit at a reduced rate of growth according to the latest RICS
UK Construction and Infrastructure Survey (link). A net balance of +17% of construction surveyors reported an
increase in workload during the quarter, compared to +30% in the previous three month period. The
Infrastructure sector is continuing to hold up better than the other subcategories, +32% this quarter, down
from +43% in Q2. Other sectors included: Private Industrial down from +28% to +12%; Private Commercial
+25% to +10%; Private +29% to +17%. However, shortages of materials (+77% net balance of surveyors) and
labour (+74) remained the most serious constraints on building activity, falling only slightly since Q2. A rising
concern now is financial constraints, +57% up from 54%.

In other news …

Buy-to-let. As many as 71% of landlords in the UK still own rental properties with an energy performance
certificate (EPC) rating of D or below, and face failure to comply with forthcoming regulations, Property
Industry Eye (link). Research by Shawbrook suggests that many are at risk of failing to comply with new
regulations proposed for April 2025 that will require newly rented properties in England and Wales to have a
minimum EPC rating of C. Existing tenancies will have until 2028 to comply. The Shawbrook study also found
that a quarter of landlords’ portfolios contain properties that all meet the C rating, while almost four in ten
(38%) only have properties that are rated D or below. Some 79% of landlords with an active mortgage have at
least one property rated D or below, the finance company found.

Housing market comment

Are bearish housing market gurus spending too long in front of their Bloomberg screens or Excel spreadsheets, rather than looking at the more basic fundamentals that drives buyer activity and prices? My latest column for Property Week (link, paywall): ‘Was rehabilitated Levelling-up secretary Michael Gove right in one of his past pronouncements, that
“people have had enough of ‘experts’ saying they know what is best and getting it consistently wrong”? Quite possibly, especially when it comes to housing.’