Author: Mintel Group Ltd.
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Consulting Engineers - UK - September 2015
Executive Summary
 
“The outlook for UK consulting engineers is expected to remain positive for the foreseeable future, with fees income anticipated to show continued growth over the next five years. In the UK, transport and energy infrastructure projects, which account for the vast majority of the current national infrastructure pipeline value, are set to provide the strongest growth potential. The return to stronger growth in the construction sector, particularly industrial and commercial building, will also be a key growth driver for UK consulting engineers.”
-Claudia Preedy - B2B Analyst

The market
UK consulting engineers’ fees income up by a modest 1% in 2014 
In 2014, fees rendered by UK consulting engineers increased by a moderate 1% to £14.1 million, following stronger growth in the previous two years. This largely reflects a slowdown in work during the year in recent growth sectors, including energy, environment and utilities. However, this masks a more positive development in some key sectors during the year, including construction and transport infrastructure. Prior to 2014, consultants’ fees increased by 3% in 2012 and 5% in 2013.

FIGURE 1: Total fees rendered by UK Consulting Engineers. By Sector, 2010-14
  
Source: MBD and trade estimates

Government’s renewed focus on infrastructure investment to provide a positive impetus for the sector
The refreshed UK infrastructure pipeline, published in July 2015, indicates £411 billion worth of projects and programmes from within the energy, transport, waste, flood defence, communications, water and science and research sectors currently in the pipeline. Combined, the energy and transport sectors account for a substantial 91% of the pipeline’s total value. The updated pipeline also identifies that 60% of projects and programmes are either in construction or part of an active programme.

Road and rail most important areas for consulting engineers’ fees income 
The roads/rail sector commanded the largest share of total fees rendered by UK consulting engineers throughout the five-year review period. The proportional importance of the sector declined from a peak of 31% in 2012 to 26% in 2013, but its share then increased to 28% in 2014. The decline up to 2013 was largely due to government cuts to road infrastructure spending, while the rail sector has remained more buoyant. In 2014, consultants’ fees rendered in the sector are believed to have increased by 9% to £4,009 million, reflecting increased fee income from both road and rail work. Overall, demand has largely been driven by major rail infrastructure projects, such as Crossrail and the Thameslink.

Power and energy sector has offered strong opportunities for consulting engineers in recent years
The power and energy sector has demonstrated strong growth potential for consulting engineers, with the share of the sector, in terms of fees rendered, increasing from 6% in 2009 to an estimated 9% in 2013, before falling moderately to 8% in 2014. Growth has been driven by the development of the renewable energy sector in the UK and Europe, most notably wind farms, as well as by the maintenance and expansion requirements of the transmission and distribution networks.

Market for UK consulting engineers anticipated to grow by 21% between 2015 and 2019
The market for UK consulting engineers is expected to increase throughout the forecast period up to 2019, with annual growth levels anticipated to fluctuate between 4% and 6% in real terms. Transport and energy infrastructure projects, which account for the largest number and value of programmes currently in the national infrastructure pipeline, are set to provide strong demand for consulting engineering services in the UK over the coming years. The largest infrastructure projects expected to get off the ground in the next five years are the new highspeed rail line HS2 and the Thames Tideway Tunnel. The return to stronger growth in the construction sector, particularly industrial and commercial building, is also set to be a key driver for growth.

Private sector to drive infrastructure investment growth
Market growth is projected to be mainly dependent on private sector investment, while public sector spending is anticipated to remain restricted during much of the current parliament. As of July 2015, 64% of the UK’s infrastructure pipeline is expected to be solely funded by the private sector. Transport infrastructure is the only major sector where the government is committed to increasing capital spending in the coming years. The government has recently also committed to increase spending on flood defences.

FIGURE 2: Forecast Market for UK Consulting Engineers, 2015-19
  
Source: MBD forecasts

Demand structure
Transport to remain largest sector for consulting engineers
Consultants’ income derived from the roads/rail sector is expected to continue to account for the largest share of the market, representing around 30% over the next five years. Overall, the value of the sector is forecast to increase by 21% in real terms between 2015 and 2019.

Road infrastructure investment is set to demonstrate particular growth over the next five years, fuelled by the government’s commitment to the biggest programme of road investments since the 1970s. The government has pledged that by 2020/21 spending on strategic road enhancements will treble from 2013 levels.

Transition to low carbon economy drives demand in power/energy sector
The government’s plan to build a low carbon economy and its commitment to an 80% reduction in CO2 emissions by 2050 is also anticipated to be a key driver for market development. The electricity generation sector is also expected to provide significant growth potential for consulting engineers, reflecting increased investment in the UK’s ageing electricity generation infrastructure. The strongest growth is expected in the renewable energy sector, mainly through off-shore wind farms, and from the development of a new generation of nuclear and gas-fired power stations in the long term. 

However, the outlook for the sector also carries increased uncertainties, reflecting recent subsidy cuts for a number of renewable technologies and delays in some projects, such as the planned Hinkley Point C nuclear plant hit. A fall in oil and gas private sector investment due to tumbling oil prices has also slightly reduced overall pipeline value in the energy sector.

FIGURE 3: Forecast Market for UK Consulting Engineers in the Power and Energy Sector, 2015-19
  
Source: MBD forecasts

Shift in focus from capital investment towards asset maintenance in water and sewerage
Ofwat expects water companies to increase focus on getting the most out of their existing assets and finding ways to minimise the total costs of operation during the current asset management period (AMP6), running form 2015 to 2020. This presents new challenges for the supply chain, and innovation will play a pivotal role in delivering solutions in the most efficient and optimised way. An increased focus on long-term thinking in the water and sewerage industry is also changing the way companies look to procure firms to deliver work during AMP6, with many opting for alliances or frameworks that run beyond the traditional five-year period.

Development of industrial construction output to remain above GDP growth over the next five years 
Warehouses will continue to form the primary sector driver for private industrial construction activity, reflecting the logistic needs of the service economy. Logistics investment grew strongly in 2014, and very strong growth will be sustained into 2015 and to a lesser extent 2016.

Private commercial construction output in Great Britain is expected to demonstrate relatively strong growth over each of the next five years. Private construction output in the commercial offices sector was already buoyant in 2013 and 2014 at levels far in excess of the UK’s overall economic development. The sector is expected to be a leading factor in demand over the next few years, and will be at the forefront of commercial construction activity growth.

FIGURE 4: Forecast Segmentation of the Fees Rendered by UK Consulting Engineers in the Building Sector, 2015-19
  
Source: MBD forecasts

Companies
The UK consulting engineering sector is highly fragmented and comprises 300 major operators, some of which are multi-disciplinary, while others specialise in either industrial or geographic markets. The range of fees rendered by consulting engineers is also very significant. However, the industry has started to see increased consolidation over the last decade, with many larger companies following an acquisition strategy to increase market share, enter new market sectors, and/or geographical areas. The industry is also highly international, with most major players serving overseas markets.

In October 2014, the US-based AECOM completed the acquisition of fellow US engineering giant URS, combining their respective UK operations. The merger creates a combined global company with £11.1 billion revenue and more than 95,000 employees.

In September 2014, Balfour Beatty announced that it had agreed to sell Parsons Brinckerhoff to Montreal-based WSP Global, which expects the acquisition to increase its presence in the US and position it as a player in the country’s transportation segment. The deal will build on WSP Global's position in the UK, and provide a stronger presence in growth regions such as Asia and Australia.

What we think
Following years of adverse market conditions in the wake of the global economic downturn, prospects for UK consulting engineers have improved since 2013. The outlook for the sector is expected to remain positive over the next five years. 

The transport and the energy sectors are anticipated to provide the strongest growth potential for consulting engineers in the UK, accounting for over 90% of the current national infrastructure pipeline value combined.

In the transport sector, road infrastructure is set to benefit from strong government spending following years of under-investment, with the government embarking on the biggest investment programme in roads since the 1970s. The largest transport infrastructure project over the next decade is the construction of the high speed rail line HS2, for which construction is expected to start in 2017. The project has already provided some lucrative contracts for consulting engineers in the design and planning phase. Rail infrastructure is also one of the largest growth sectors in overseas markets, with strong worldwide investment in high speed rail and urban metro systems.

Growth in the energy sector is driven by the further development of the renewable energy sector. The government’s commitment to building new nuclear power and gas-fired power stations also provides further growth opportunities for consulting engineers in the long term. However, growth projections for the sector have been revised downwards due to government subsidy cuts for a number of renewable technologies, delays in building new power stations, and reduced investment in the offshore oil and gas exploration industry.

One factor that could hold back the sector’s recovery is the continued shortage of engineering skills in the UK. Continuing pressure from clients for value for money, especially in the public sector, also continues to present challenges to consulting engineers.

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