Recession: developers sound the alarm

The fortunes of construction are teetering on the edge this week, with property developers warning of recession, and the housing prices falling for the first time in 20 months. Turbulence in world stock markets could cause the situation to take a drastic turn for the worse.

Leading developers told CJ it was a matter of when, not if, there would be a downturn in commercial construction activity. They have seen their share prices crash in recent months to leave the sector standing at a 12 month low.

Geoff Wright, construction director at Hammerson, told CJ: "For some time Hammerson's view has been if you have a building that you haven't completed by the year 2000, the chances are it could be on your hands for some time."

He is predicting a downturn in construction activity from 2000-2002, adding that it could become steep if the Rouble crisis is not speedily resolved. "It could cause a lack of business confidence," he said.

Bernard Rimmer construction director of the fifth largest property developer, Slough Estates, said that "the phones are ringing less," and added, "I am hoping that the low inflation we have had over the last few years and the state of the economy will ensure that the downturn will be flatter than the last one."

Richard Kauntze of the British Property Federation said: "We are undoubtedly heading for a slowdown, but not a massive crash." But he confirmed that worldwide economic events could change the outlook: "If Japan goes down the plughole as is being suggested, the knock-on effects would be profound."

Elsewhere City analysts are on recession alert, jumping on reports from piling specialist Keller of weaker margins in the first half of 1998. Construction analyst Kevin Cammack at Merrill Lynch believes Keller's results bode ill for construction's future. "Keller is at the sharp end of ground work and its figures point to a slowdown in construction activity." The company's shares fell 8.5 per cent on Tuesday as CJ went to press, despite posting positive numbers (see business page 8).

Cammack anticipates housebuilding chiefs will be warning of gloomy prospects in the coming results season. "Companies tend to be the last to accept that conditions are changing but their share prices will be telling it for them."

Following the 0.5 per cent fall this month, house prices are said to be on a downward course. David Parry, Nationwide's divisional director of planning, said: "It is now clear that house price inflation peaked towards the end of 1997 and has been on a modest downward trend ever since.

"Persistently high interest rates and weakening consumer confidence mean that house prices are likely to be somewhat less robust in the coming months."