Consultants survey - Market takes bullish stance

Consultancy bosses are keen to talk up the market following yet another year of healthy sectoral growth, explains Catherine Early.

The arrival of the first firm to rake in £50 million in a year from planning work alone demonstrates that the sector is now a massive player in the UK consultancy market.

The 2004-05 planning fee income figure quoted by market leader RPS Group would have comfortably accounted for the combined planning income of the top 20 firms in the first Planning Consultancy Survey back in 1997. The 118 companies providing turnover information this year brought in an aggregate of approximately £323 million during the past financial year, almost four times the amount recorded as recently as five years ago in 1999-2000.

In this year's survey 57 consultancies reveal planning fee income of more than £1 million in 2004-05, against 23 in 1996-97 and 46 last year.

The top ten firms all surpassed the £9 million mark. Judging from the number of fee earners, the likelihood is that at least another two dozen companies that declined to reveal their turnover also saw seven-figure takings last year.

There is still no sign of the growth bubble bursting, with the market jitters that preceded this May's general election turning out to have been the merest blip. Consultants remain optimistic about prospects for the short term, with most expecting to see growth in fee income of at least ten per cent during the course of 2005-06. A buoyant economy combined with lacklustre performance in other types of investment is fuelling growth in the property sector, most believe.

Population growth and social change mean that there is much more work on the policy and strategy side of consultancy. But perhaps the biggest factor is the Planning and Compulsory Purchase Act 2004. "The very nature of local development frameworks (LDFs) means that input is needed at several stages of the process," maintains Richard Shaw, head of planning at Savills. "Nearly all authorities are running these concurrently, so there is a crescendo of work right across the country."

Philip Robin, the partner responsible for the planning group at consultancy King Sturge, echoes these sentiments. "LDFs are our biggest growth area without a doubt," he insists. "We are making representations and helping councils with the technical aspects of their LDFs, such as retail studies and employment land studies."

Robin continues: "People have come to realise the importance of the plan-led system and that you must have it right at the beginning of the process. Planning is becoming more complex and there is a need to involve more professionals on applications."

Denise Emery, managing director of Emery Planning Partnership, believes that consultancies are receiving greater recognition for their work than previously. "The change in legislation requires far more justification for development proposals," she suggests. "People are recognising the need to get consultancies on board as early as possible. Employing consultants used to be a last resort, when an application was refused. Now we are seen as adding value."

GVA Grimley head of planning and regeneration Stephen Brown reports: "The market is as strong as it has been for the past couple of years.

There is an ever-growing demand for planning skills. Our growth is not driven by our size but by the quality of people we can offer." Brown feels that part of his company's success has resulted from its ability to develop its expertise in particular niches of the market. "We are a collection of specialists," he claims.

The continuing shortage of resources in local authority planning departments means that councils are increasingly looking to consultants to fill the gaps. Atkins Planning director Paul White contends that the planning delivery grant is partly responsible for a rise in local government work for consultants.

"The grant is worth £170 million this year and around ten per cent of that is likely to be spent on consultants," he points out.

CgMs Ltd director Mike Straw agrees that consultants are seeing a growth in public sector work. In his view, this is being driven by changes in policy rather than the market. "As a planning consultant working for house builders, you are in a vulnerable position," he suggests. "They hire and fire and when the market is dropping, they drop their consultants."

But Taylor Young managing director Steven Gleave maintains that his firm is experiencing a growth in private sector work, especially in housing.

"Our work used to be dominated by the public sector. We are seeing more coming in from commercial clients for house building and industrial and employment developments," he says. Established only 12 years ago, the company is getting more opportunities to pitch for work. "Sometimes clients are looking at us for the first time," says Gleave.

Taylor Young exceeded its predictions for growth last year after opening an office in Liverpool. But Gleave is more cautious about prospects in the next couple of years. "We cannot possibly expect the same rate of growth, although there is definitely a lot of work to do out there. There are not a huge number of people doing it, relative to need. We are inundated, both from the public and private sector," he claims.

Shaw believes that the increasing complexity of the planning system is behind much of Savills's recent work. "The entire process is more complex for all types of development, but especially major schemes," he observes.

"We are growing in a lot of areas at the same time. We are certainly not generalists. Our work ranges from environmental assessments, masterplanning and urban design to dealing with wind farm applications."

Nigel Cooper, head of planning and development at Colliers CRE, also highlights an increasingly complex system as a market driver. "There are so many more regulations and requirements to take on board, even compared with a couple of years ago. The scope for a planning application has increased.

Lack of resources in local authorities is an issue, but the extra complexity is adding to their need to employ consultants," he contends.

Growing concern over environmental issues is also reflected in increased consultancy work. "We are doing a lot of environmental impact assessments, which need to be project managed. Both politicians and the public are more interested in green issues," says Stuart Robinson, executive director at CB Richard Ellis. "The only thing that is restricting us is recruitment," he complains.

"There is plenty of work out there, it is just a matter of finding the right people," notes Cooper. "Recruitment problems put our teams under more pressure and we cannot do all the work that we are asked to take on. Local authority planners are under a lot of pressure, but I think that pressure is now extending to consultants."

Nathaniel Lichfield and Partners managing director Gareth Morgan says that the firm has grown steadily over the past few years. "I think there is scope to go further, as long we can get the staff we need," he adds.

Morgan believes that the firm can fill both a multidisciplinary and specialist place in the market simultaneously. "One of the advantages of being the size we are is that we can be very diverse. We are specialists in many areas," he says.

Several consultancies report that they are broadening their services to put more emphasis on the implementation side of approved development schemes. Development Land & Planning managing director Simon James says: "In the past, our role would have ceased when outline approval was issued for a scheme. Now we are getting involved in section 106 agreements and conditions attached to consents as well."

The survey reveals a strong position for retail consultants, whose prospects have been boosted by government insistence that local authorities should carry out retail need assessments. "PPS6 is increasing the onus on local authorities to identify retail sites, so more land is coming through. Local authorities lack the specialist knowledge to deal with it," affirms Robinson.

Shaun Andrews, partner and head of planning in London at Donaldsons, reports that the firm's traditional specialism in retail remains strong, but adds that it is branching into other areas. "We are involved in a lot of sports, education and health care facilities through our sister company, PMP Consulting. We have been instructed to do a very large private finance initiative contract in Leicestershire for three new hospitals," he explains.

Andrews sees a resurgence of interest in office development. "It was tricky for a couple of years, but recently there has been renewed interest in London," he finds. "It is now part of the repertoire of uses you can develop, whereas a couple of years ago it was hard to get it to work." He also reports a renewed interest in cinema developments after a lull in recent years. "It was difficult to get cinema operators interested but now they are flocking to us," he says.

Regeneration schemes will focus fee income growth in specific areas, consultancies believe. The Thames Gateway and the South East generally are obvious concentrations of work, but general urban renaissance is continuing apace as a stable economy gives cities more cash to invest.

Consultants are most bullish about the stream of commercial, residential, retail and leisure investment that the drive for brownfield renewal will entail.

While it is predicted to increase less markedly over the next year, planning of energy, transport, water and telecommunications infrastructure remains a stable source of work for many firms. "We are quite confident that the growth we have seen in this sector will continue," says Adams Hendry Consulting director Martin Hendry. "It is an increasingly specialist area. We are catching up with investment that has been missing for 50 years."

This historic lack of investment is also cited by Gleave as a source of work. "The state of the nation is fuelling growth," he says. "A transformational change has to happen and people want help understanding how it should happen. They do not want it to be led by the market." He believes that the public's appetite for change has been boosted too. "People have more personal property. There is nothing quite like that to increase interest," he says.

Multidisciplinary consultancies and more specialist outfits alike are experiencing success. "Every year we see how we fit. We have decided not to be a large, generalist consultancy," says Hendry. "The market is dividing into consultancies that offer a one-stop-shop and those that are specialist. We get involved in large-scale projects, even though we are a smaller consultancy. We concentrate on what we do best, but I think there is room for everybody."

James describes Development Land & Planning as a generalist consultancy.

But the firm is soon to acquire a design company of landscape architects and urban designers. "There is a greater emphasis on design skills across the board. We see this as a growth area," he says. Gleave agrees that design is vital: "It is essential for us to have urban design as a central part of our work. We are urban designers within a planning service."

Despite a flurry of offices opening around the country in the past few years, many consultancies are still considering geographical expansion.

For some, opening up fresh territory is part and parcel of the drive for increased fee income. "We have grown at between 20 and 25 per cent a year, which is quite substantial," says Shaw. "This is partly because we are expanding. It is not just down to the same people generating more money."

Colliers CRE is planning to develop teams in Leeds and Bristol in the next 12 months, says Cooper. But he suspects that fee rates may have to increase at a faster rate than before to deal with heightened expectations among private sector staff. "It is difficult to recruit planners and people are looking for more money. Consultants' salaries are increasing faster than hourly rates, so we are getting to a stage of imbalance. Consultants justify their existence by how much they bill and you cannot run at a loss."

Donaldsons has a five-year plan to double turnover, reports Andrews.

"London services the country at the moment, but we plan to grow teams in Manchester, Bristol, Birmingham and Scotland," he says. Others are not so ambitious. Emery Planning Partnership is not looking at opening other offices. "We aim to provide a service and if we grow, that's good. We respond to clients' needs rather than having a specific target," says Emery.

Amid increasing demand for their services most firms insist that they are not taking advantage by hiking up their fee rates. Only two companies put up their fees by more than 20 per cent last year, while another dozen increased charges by ten per cent or more. But across the board, the typical increase in 2004-05 was less than five per cent. This year's growth is unlikely to be much higher.

While many of the larger practices are reluctant to divulge details of their charging regimes, this year's survey confirms that a handful are charging at least £1,000 a day for the services of their directors or partners. For some companies, charges for associates or senior planners are also creeping up to around the four-figure mark for a day's work.

Yet, for the most part, planning consultants' fees still compare favourably to those quoted by specialist planning solicitors or middle-ranking barristers.

Most consultants maintain that they are not expecting fee rates to rise above inflation. "We look at what the competition is charging and what the client derives from our input," says Shaw. "We do not have a set percentage for increasing it. It is important to us that clients feel they are getting good value for money and they end up measuring this by results."

Hendry adds: "We have to tailor the fee rate to the client. There is a premium for quality and experience. But we get a lot of repeat business." Gleave expects fee rates to go up in certain areas. "They vary depending on the client, but I anticipate a rise because all our staff want to be paid more. We have recruited young people who are progressing and the last thing we want them to do is leave."

Although Donaldsons has raised fee rates, Andrews is adamant that they have remained reasonable. "Some consultancies are exploiting the fact that there are few planners and lots of work. We are concerned about that. One of the reasons why we have grown is because we have not jumped on the bandwagon."

For a full breakdown of the survey responses, see this week's Planning (11 November 2005).

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