North East England’s Construction Innovation Ecosystem


From 7 May 2024, The North East Evidence Hub is a project of the North East Combined Authority. Find out more at northeast-ca.gov.uk/north-east-lep Search Search Home Spotlight Analysis Evidence by Theme News & Commentary North East England’s Construction Innovation Ecosystem Research into the business base, strengths and challenges of the innovation ecosystem and recommendations for how to drive future innovation Home Current Page {{element.textContent}} Page Menu {{element.textContent}} Introduction The construction sector is a substantial part of the North East economy, with the wider ecosystem estimated to represent 9,750 businesses and 95,000 employees, as well as £2.3 billion in regional GVA. The industry is also an enabler for progress, with more than £600bn in expected investment in infrastructure nationally in the next decade, along with the £4.2bn of regional investment over 30 years as part of the North East devolution deal, a proportion of which will focus on infrastructure. The sector is also one which is prime for innovation, with new techniques, new materials and digital transformation all likely to play a role in establishing new, more productive approaches to construction in coming years. In order to better understand the sector, a group including the North of Tyne Combined Authority and the North East LEP commissioned a research report into North East’s construction innovation ecosystem. The findings of the report, which was authored by Scius Advisory, Ryder Architecture and Hydrock, explore the key players in the sector, as well as the regional enablers of innovation in construction, and the barriers which exist to further growth. The headlines can be viewed below and the full report downloaded here. 265 enterprises directly involved in construction innovation £6.08bn estimated turnover from these innovative businesses 2/3rds are SMEs with fewer than 50 staff 15% have at least one office outside the UK, showcasing our global credentials “I think we need to seize the opportunity of a new Combined Authority to really set out a regional approach and to encourage engagement, best practice sharing, and also blow our own trumpet around the things that we do well”. Sandra Manson. Developing Consensus The Context The construction sector represents around 7.5% of regional employment, and 5.5% of regional GVA. The health of the sector is therefore crucial for the broader health of the North East economy. However, the report quotes CITB figures which show the North East construction industry is at risk of stagnating. Contract awards and detailed planning approvals fell in 2023 compared to 2022, and project starts remained flat against 2022. Projections suggest that the volume of work in the region will grow slowly, with an average annual growth rate of 0.9% to 2027, below the national forecasts of 1.5% growth. Infrastructure is identified as the largest sub-sector, with £1.05bn in North East projects in the first half of 2023, followed by private sector housebuilding with £738m and commercial property with £528m of projects. The North East construction sector is also the smallest in the country, with 3.0% of Britain’s construction employees, and the lowest construction output of any English region with £5.17bn. The North East devolution deal may provide an opportunity to stimulate the sector through measures including £69m for housing regeneration, £48m a year to support inclusive growth, £60m a year for adult education and skills, and £900m focused on transforming transport. However, to do that it was first necessary to understand the drivers of construction innovation globally, the current business base, and the strengths and weaknesses of the current ecosystem. The headlines across these areas from the research are summarised below followed by the report’s conclusions and recommendations. Trends and drivers of innovation Innovation is crucial to closing some of the divides between the North East construction sector and the rest of the country, and ensuring that businesses are as productive as possible. The report identifies the following set of influences of innovation in the construction sector. including Brexit and the pandemic including through industrial policy, infrastructure spending and devolution such as the housing supply shortage, office occupancy rates and online retail, as well as broader influences like inflation which are rapidly changing, both to adapt to changing market conditions (i.e. increased prefabrication) and to shocks like Brexit, but which also leave suppliers vulnerable when large firms fail which is influenced by geopolitical instability and by a shift towards diversification of generation and the drive to meet net zero commitments through mitigation and adaptation which has a focus on construction materials and regulation pressures given the sector relies on a labour-intensive business model and has an ageing workforce including the constraints of the existing electricity grid, and development of gas, hydrogen, water and heat networks North East innovation ecosystem To map the current innovative business base in the region the report identified existing construction firms using companies house. Web based research and interviews with leaders were used to understand their use of technology and innovation. 20,775 people working in innovative construction businesses 19 providers of education programmes with construction elements 40% of firms have a turnover of below £2m 31% of innovative construction firms with out of region location The report also divided the broader ecosyem into three pilliars, enterprises, stimulus orgnasations (such research groups and incubators) and education providers. Each of these is a crucial backbone to the ecosystem in the North East. The evaluation identified more than 400 organisations which were contributors to the construction innovation ecosystem in the region. These included enterprises themselves, stimulus organisations and education providers. There are 264 enterprises which are directly involved in construction innovation - such as manufacturers, technology providers, and advanced manufacturing firms - as well as 39 more which are offering bridging to new technology and approaches, including advanced materials, energy and offshore and automotive. The evaluation lists manufacturing (41 firms) and construction (39 firms) as the top two sub-sectors for number of firms, followed by architecture (35 firms). The biggest employers were construction (6,831 in the workforce), manufacturing (4,429 people) and engineering (2,617 people). The largest turnover was observed in construction (£2.43bn), development (£1.18bn) and manufacturing (£941m). Most firms in the region are small, with 40% having a turnover of less than £2m per year. The authors highlight the impact of Esh, as the largest firm headquartered in the region which is actively involved in construction innovation, alongside the largest employers in Equans, Magnet, Northumbria Healthcare Facilities Management and Karbon Homes. A third of businesses involved in innovation (34%) have fewer than ten employees, and just under two-thirds (63%) have fewer than 50 employees. Ten large firms, which tend to have the resources to aid innovation adoption, are identified in the North East, including Siemens, AECOM, Akzo Nobel and BAM Construct. Three in ten (31%) of firms trade outside of North East England, with 15% having at least one office outside of the UK. On innovation tiself, Building information modelling - BIM - is shown to be the leading form of technology adoption, alongside design and construction software. There are a small number of firms actively engaged in the use of new materials and a strong supporting ecosystem in non-construction engineering and manufacturing. There are 117 organisations involved in developing technology for the construction sector, as well as many more which are likely developing their own proprietary technologies. The North East also benefits from strong aligned capabilities in digital technologies, off-highway automotive, offshore renewable energy and mining and quarrying. There are a range of stimulus organisations to support construction innovation - such as networks, catalysts, incubators and researchers - with a total of 88 identified, including 59 with a physical location in the North East. Networks make up 26% of stimulus organisations, with the evaluations specifically mentioning BIMStore, Constructing Excellence’s OneVoice and the International Centre for Connected Construction. The evaluation acknowledges the concern that so many networks can dilute their effectiveness, especially as many are discipline-specific and so fail to bring different arms of the industry together. It also notes there is little dedicated to innovation specifically, nor to support start-ups operating in the construction sector. There are several thriving research centres and centres of excellence in the region, including at all four universities in the North East LEP area. These centres run 19 facilities, and there are a further 10 companies and three education providers with similar offers. The North East has seen successful partnerships between industry and academia, and is well-served by incubators and catalysts including the Centre for Process Innovation, Digital Catapult North East and Tees Valley, and the North East BIC. There are eleven organisations which provide access to funding programmes, and devolution continues to change this landscape, with the North of Tyne Combined AUthority running many programmes targeting regional development. Funding is a mix of large-scale programmes - such as the Brownfield Housing Fund - and small-scale interventions such as those run by Northstar Ventures and FW Capital. The evaluation notes there has been an historic lack of funding aimed at bringing innovations to market and providing a skilled workforce. While there are some programmes aimed at creating commercialisation pathways - including those run by Sunderland Software City - the evaluation argues there is a lack of sufficient capital or government funding which works for the construction sector, often as the result of requiring a faster return on investment than is possible in the industry. The North East construction sector is forecast to require an extra 7,900 workers by 2027, with annual recruitment of 1,580 between 2023 and 2027. Apprenticeship statistics for 2022/23 showed just 260 construction, planning and built environment students and 660 engineering and manufacturing technology students completed apprenticeships in that academic year. The weaknesses in the traditional education options have led larger companies like Ryder Architecture and Esh Construction to develop their own programmes which provide more routes into the sector, with additional graduate and work experience placements in particular. Nevertheless, a total of 19 providers offer education programmes with construction elements, at various qualification levels, including Durham University, Gateshead College and their PlanBEE programme, Northumbria University’s digital built environment work. There are also a huge number of options for mid-career training and upskilling from a range of organisations, including several Chartered Institutes, on topics like project management, surveying, and BIM. Overall, skills retention in the region remains a problem, and more needs to be done to keep highly-skilled people in the region. There is also a need to foster diversity, which can itself aid innovation and the adoption of new approaches, especially as the North East’s construction industry is seen as featuring tightly knit relationships. Ecosystem strengths and challenges Having reviewed the current ecosystem, the research then identified the current strengths and challenges of the region facing the North East currently. Our strengths 1. Early leadership in BIM has seen a strong digital construction cluster develop in the North East 2. A vibrant advanced materials cluster with technologies applicable to construction 3. Collaboration and community at the project, sectoral and industry levels 4. Presence of large companies with national and global reach, which is important for enabling innovation 5. Fiercely competitive local market, which encourages firms to be creative and agile 6. High quality research, with high-rated universities, National Innovation Centres and numerous centres of excellence 7. Innovative education programmes, where industry and providers have collaborated including the PlanBEE apprenticeship programme and highly-focused skills boot camps 8. Affordable rents and available space for start-ups, including incubators with serviced office space to support early stage businesses 9. Available data to benchmark innovation, for example Constructing Excellence’s national industry KPIs 10. Incubators helping large and small firms collaborate, including through Dynamo, IC3 and Sunderland Software City 11. Innovative local construction education programmes, such as the BIM Academy and PlanBEE, which have even been exported to other countries Read More Gaps and challenges 1. Slow to capitalise on early leadership of BIM, and it has been difficult to sustain that leadership as there has been a lack of support 2. Industry short-termism, resulting from the nature of projects and the hand-to-mouth existence of many firms in the industry. This means short term needs and survival are prioritised over forward planning and investment 3. Lack of regional industry data, which would allow tracking of the health and performance of the construction sector in the North East 4. Lagging in the shift to low carbon bio-based materials, despite the region being home to the Hub for Biotechnology in the Built Environment 5. Lack of knowledge sharing in innovation, with a lack of a coordinated centralised platform for case studies, testing programme results and similar information 6. Lack of construction-specific innovation funding, which recognises the different support required and different investment models existing in the sector 7. Lack of incentives to innovate, such as government-backed guarantees or insurances, which can help counter the construction industry’s tendency to be risk averse 8. Over-complicated research support programmes, which can make them difficult to access, with few opportunities for support for project-based R&D 9. Regional ‘invisibility’ which limits the region’s ability to attract investors 10. Inconsistent procurement processes which can hamper the adoption of new approaches, even where they are mandated 11. Regulatory challenges, where there is over-complication or measures which are inconsistent with the adoption of innovative products and practices 12. Lots of talk, less action, despite the existence of networks and catalysts which foster innovation, there are few opportunities for the meaningful exchange of information 13. Labour and IP ‘flight’ as skills and knowledge exit the region, often in the form of early stage companies wanting to be closer to investors and talent 14. Lack of change management support, as programmes tend to focus on capital investment in new technology rather than enabling the required operational Read More Conclusions and recommendations Based on the existing ecosystems and the strengths and challenges facing the region, the report concludes with 10 recommendations to drive future innovation in the construction ecosystem. to build on the region’s leadership in BIM and digital construction where knowledge and information can be shared to lead the efforts to nurture and grow the sector’s innovation capabilities with specific support to nurture their growth to counter problems of law margins, inertia and long project life cycles to ensure skills are available when they are needed combining data from multiple sources to give a picture of the industry in the region’s construction innovation space both nationally and internationally, building on the global connections of firms in the region including by the creation of testbeds and ‘sandpits’ to support innovation and development of new technologies and approaches The report ends by highlighting that broad industry support is crucial for nurturing an innovation ecosystem, and that perhaps the most important factor the research revealed was the existing of a strong community in the North East. 51 buisness leaders were willing to make the time to dicuss and their insights and enthusiasm were clear to see. It will be important for the ecosystem to build on this energy, goodwill, and community in the future. "The construction sector is critical to enabling regional economic growth. A sector in its own right, employing people in a variety of careers and professions, it also cuts across our economy, facilitating growth and development of other sectors and services" - Helen Golightly, North East LEP Further evidence Overarching evaluation of the North East Growth Hub and its activities Introducing the overarching evaluation, headline findings and key recommendations. Find out more High Potential Start Ups evaluation To find out more about the evaluation of the High Potential Start Ups programme. Find out more Made Smarter Evaluation To find out more about the learnings from the Made Smarter North East programme evaluation. To find out more North East Growth Hub To explore what business is currently available in the North East LEP area. To find out more

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Introduction

The construction sector is a substantial part of the North East economy, with the wider ecosystem estimated to represent 9,750 businesses and 95,000 employees, as well as £2.3 billion in regional GVA.

The industry is also an enabler for progress, with more than £600bn in expected investment in infrastructure nationally in the next decade, along with the £4.2bn of regional investment over 30 years as part of the North East devolution deal, a proportion of which will focus on infrastructure.

The sector is also one which is prime for innovation, with new techniques, new materials and digital transformation all likely to play a role in establishing new, more productive approaches to construction in coming years.

In order to better understand the sector, a group including the North of Tyne Combined Authority and the North East LEP commissioned a research report into North East’s construction innovation ecosystem.

The findings of the report, which was authored by Scius Advisory, Ryder Architecture and Hydrock, explore the key players in the sector, as well as the regional enablers of innovation in construction, and the barriers which exist to further growth. The headlines can be viewed below and the full report downloaded here.

265

£6.08bn

2/3rds

15%

The Context

The construction sector represents around 7.5% of regional employment, and 5.5% of regional GVA. The health of the sector is therefore crucial for the broader health of the North East economy.

However, the report quotes CITB figures which show the North East construction industry is at risk of stagnating. Contract awards and detailed planning approvals fell in 2023 compared to 2022, and project starts remained flat against 2022.

Projections suggest that the volume of work in the region will grow slowly, with an average annual growth rate of 0.9% to 2027, below the national forecasts of 1.5% growth.

Infrastructure is identified as the largest sub-sector, with £1.05bn in North East projects in the first half of 2023, followed by private sector housebuilding with £738m and commercial property with £528m of projects.

The North East construction sector is also the smallest in the country, with 3.0% of Britain’s construction employees, and the lowest construction output of any English region with £5.17bn.

The North East devolution deal may provide an opportunity to stimulate the sector through measures including £69m for housing regeneration, £48m a year to support inclusive growth, £60m a year for adult education and skills, and £900m focused on transforming transport.

However, to do that it was first necessary to understand the drivers of construction innovation globally, the current business base, and the strengths and weaknesses of the current ecosystem. The headlines across these areas from the research are summarised below followed by the report’s conclusions and recommendations.

Trends and drivers of innovation

Innovation is crucial to closing some of the divides between the North East construction sector and the rest of the country, and ensuring that businesses are as productive as possible. The report identifies the following set of influences of innovation in the construction sector.

including Brexit and the pandemic

including through industrial policy, infrastructure spending and devolution

such as the housing supply shortage, office occupancy rates and online retail, as well as broader influences like inflation

which are rapidly changing, both to adapt to changing market conditions (i.e. increased prefabrication) and to shocks like Brexit, but which also leave suppliers vulnerable when large firms fail

which is influenced by geopolitical instability and by a shift towards diversification of generation

and the drive to meet net zero commitments through mitigation and adaptation

which has a focus on construction materials and regulation

pressures given the sector relies on a labour-intensive business model and has an ageing workforce

including the constraints of the existing electricity grid, and development of gas, hydrogen, water and heat networks

North East innovation ecosystem

To map the current innovative business base in the region the report identified existing construction firms using companies house. Web based research and interviews with leaders were used to understand their use of technology and innovation.

20,775

40%

31%

The report also divided the broader ecosyem into three pilliars, enterprises, stimulus orgnasations (such research groups and incubators) and education providers. Each of these is a crucial backbone to the ecosystem in the North East.

The evaluation identified more than 400 organisations which were contributors to the construction innovation ecosystem in the region. These included enterprises themselves, stimulus organisations and education providers.

There are 264 enterprises which are directly involved in construction innovation - such as manufacturers, technology providers, and advanced manufacturing firms - as well as 39 more which are offering bridging to new technology and approaches, including advanced materials, energy and offshore and automotive.

The evaluation lists manufacturing (41 firms) and construction (39 firms) as the top two sub-sectors for number of firms, followed by architecture (35 firms).

The biggest employers were construction (6,831 in the workforce), manufacturing (4,429 people) and engineering (2,617 people).

The largest turnover was observed in construction (£2.43bn), development (£1.18bn) and manufacturing (£941m).

Most firms in the region are small, with 40% having a turnover of less than £2m per year.

The authors highlight the impact of Esh, as the largest firm headquartered in the region which is actively involved in construction innovation, alongside the largest employers in Equans, Magnet, Northumbria Healthcare Facilities Management and Karbon Homes.

A third of businesses involved in innovation (34%) have fewer than ten employees, and just under two-thirds (63%) have fewer than 50 employees. Ten large firms, which tend to have the resources to aid innovation adoption, are identified in the North East, including Siemens, AECOM, Akzo Nobel and BAM Construct.

Three in ten (31%) of firms trade outside of North East England, with 15% having at least one office outside of the UK.

On innovation tiself, Building information modelling - BIM - is shown to be the leading form of technology adoption, alongside design and construction software. There are a small number of firms actively engaged in the use of new materials and a strong supporting ecosystem in non-construction engineering and manufacturing.

There are 117 organisations involved in developing technology for the construction sector, as well as many more which are likely developing their own proprietary technologies.

The North East also benefits from strong aligned capabilities in digital technologies, off-highway automotive, offshore renewable energy and mining and quarrying.

There are a range of stimulus organisations to support construction innovation - such as networks, catalysts, incubators and researchers - with a total of 88 identified, including 59 with a physical location in the North East.

Networks make up 26% of stimulus organisations, with the evaluations specifically mentioning BIMStore, Constructing Excellence’s OneVoice and the International Centre for Connected Construction.

The evaluation acknowledges the concern that so many networks can dilute their effectiveness, especially as many are discipline-specific and so fail to bring different arms of the industry together. It also notes there is little dedicated to innovation specifically, nor to support start-ups operating in the construction sector.

There are several thriving research centres and centres of excellence in the region, including at all four universities in the North East LEP area. These centres run 19 facilities, and there are a further 10 companies and three education providers with similar offers.

The North East has seen successful partnerships between industry and academia, and is well-served by incubators and catalysts including the Centre for Process Innovation, Digital Catapult North East and Tees Valley, and the North East BIC.

There are eleven organisations which provide access to funding programmes, and devolution continues to change this landscape, with the North of Tyne Combined AUthority running many programmes targeting regional development.

Funding is a mix of large-scale programmes - such as the Brownfield Housing Fund - and small-scale interventions such as those run by Northstar Ventures and FW Capital.

The evaluation notes there has been an historic lack of funding aimed at bringing innovations to market and providing a skilled workforce. While there are some programmes aimed at creating commercialisation pathways - including those run by Sunderland Software City - the evaluation argues there is a lack of sufficient capital or government funding which works for the construction sector, often as the result of requiring a faster return on investment than is possible in the industry.

The North East construction sector is forecast to require an extra 7,900 workers by 2027, with annual recruitment of 1,580 between 2023 and 2027.

Apprenticeship statistics for 2022/23 showed just 260 construction, planning and built environment students and 660 engineering and manufacturing technology students completed apprenticeships in that academic year.

The weaknesses in the traditional education options have led larger companies like Ryder Architecture and Esh Construction to develop their own programmes which provide more routes into the sector, with additional graduate and work experience placements in particular.

Nevertheless, a total of 19 providers offer education programmes with construction elements, at various qualification levels, including Durham University, Gateshead College and their PlanBEE programme, Northumbria University’s digital built environment work.

There are also a huge number of options for mid-career training and upskilling from a range of organisations, including several Chartered Institutes, on topics like project management, surveying, and BIM.

Overall, skills retention in the region remains a problem, and more needs to be done to keep highly-skilled people in the region.

There is also a need to foster diversity, which can itself aid innovation and the adoption of new approaches, especially as the North East’s construction industry is seen as featuring tightly knit relationships.

Ecosystem strengths and challenges

Having reviewed the current ecosystem, the research then identified the current strengths and challenges of the region facing the North East currently.

Conclusions and recommendations

Based on the existing ecosystems and the strengths and challenges facing the region, the report concludes with 10 recommendations to drive future innovation in the construction ecosystem.

to build on the region’s leadership in BIM and digital construction

where knowledge and information can be shared

to lead the efforts to nurture and grow the sector’s innovation capabilities

with specific support to nurture their growth

to counter problems of law margins, inertia and long project life cycles

to ensure skills are available when they are needed

combining data from multiple sources to give a picture of the industry

in the region’s construction innovation space

both nationally and internationally, building on the global connections of firms in the region

including by the creation of testbeds and ‘sandpits’ to support innovation and development of new technologies and approaches

The report ends by highlighting that broad industry support is crucial for nurturing an innovation ecosystem, and that perhaps the most important factor the research revealed was the existing of a strong community in the North East. 51 buisness leaders were willing to make the time to dicuss and their insights and enthusiasm were clear to see. It will be important for the ecosystem to build on this energy, goodwill, and community in the future.