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Optimism for construction workloads in the UK

There is optimism for construction workloads in the UK, despite uncertainties around Brexit weighing on investment decisions, and various market constraints, according to the results of the Q4 2017 RICS Construction and Infrastructure Market Survey.

Survey highlights:

  • Only 12% of respondents expressed any confidence in Government strategy succeeding to hit housing target
  • Brexit uncertainties continue to weigh on investment decisions
  • Outlook for workloads and employment growth improves amid ongoing capacity constraints

View and download the survey

Workloads rise

In Q4 2017, 21% more chartered surveyors reported their workloads to have risen despite financial constraints, labour shortages and planning delays remaining key impediments to growth with 80%, 60% and 60% of surveyors reporting difficulties with each, respectively. Comments from some respondents suggest that stricter conditions being placed on firms by financial institutions are limiting growth, which most likely reflects increased caution given cyclical market conditions and Brexit considerations.

The lack of sufficiently skilled workers also remains an obstacle for many businesses, particularly with regard to professional services such as quantity surveying – only in 2007 had the share of contributors highlighting this as a concern been higher.

Also measured in the Q4 2017 survey was an assessment of how contributors feel about the wide range of policies included in the Autumn Budget and Housing White Paper to lift housing delivery to 300,000 units per year. Nationally, only 12% of respondents expressed any confidence in the overall strategy succeeding while the remainder were evenly divided between a lack of confidence or being unsure.

Policies

Looking at specific policies, a £1.1 billion fund to unlock strategic sites, including new settlements and urban regeneration schemes, was viewed by far as the most effective to boost housebuilding (37%). This was followed by lifting Housing Revenue Account borrowing caps for councils in high demand areas (18%) and adding £2.7bn to the Housing Infrastructure Fund (16%).

Despite the constraints that firms have been facing recently, chartered surveyors remain optimistic about the outlook for the year ahead. The RICS survey is forward looking in comparison to official data, and net balances of 48% and 35% of respondents expect workloads and employment levels, respectively, to continue to rise over the coming 12 months.

Pace of growth

Workloads are now reported to be increasing across all geographic regions, particularly in the Midlands and North. Over the past year or two, however, the pace of growth in the infrastructure sector has slowed noticeably in Scotland with surveyors now reporting the first decrease in activity since Q3 2016. This has been somewhat offset by an improvement in workloads in Northern Ireland.

Higher input costs and a shortage of labour continue to restrict growth in profit margins, with a net balance of +12% of respondents expecting a rise in margins over the coming year, unchanged from the previous quarter. This is likely to have impacted tender pricing as well, with 56% more respondents in both the building and civil engineering areas envisaging greater price pressures.

Jeffrey Matsu, RICS Senior Economist said “Activity in the construction and infrastructure sectors continues to expand despite uncertainties related to Brexit and recent market events. While expectations for the year ahead remain positive, surveyors express very limited faith in the government’s national strategy to deliver on its revised housing delivery target. Capacity constraints notwithstanding, the ability of the sector to contribute more sustainably to economic prosperity will depend largely on more coherent policies addressing issues ranging from workforce development to local planning and permissioning.”

Lewis Johnston, RICS Parliamentary Affairs Manager added “with only 12% of respondents confident that the Government’s overall housing strategy is sufficient to meet housebuilding targets, it’s clear more radical action is needed. As we said at the time of the Autumn Budget, the smorgasbord of policies set out by the Chancellor did not amount to the fundamental step-change we need to really shift the dial on housing.

“In practical terms, the Government should go further with the policies respondents felt will be most effective, such as the £1.1 billion fund to unlock strategic sites. In addition to the partial lifting of the Housing Revenue Account borrowing cap, councils should also be given the tools they need to build, including more access to funding and a pipeline of suitable land. The fact that 60% of survey respondents cited labour shortages as a serious constraint to growth underlines to need to tackle skills shortages in construction, and move the sector towards higher-tech, less labour intensive production methods.”

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Expectations for construction workloads regain lost ground

Expectations across the construction sector have now regained the ground lost post the EU vote, according to the latest Royal Institution of Chartered Surveyors (RICS) Construction Market Survey, Q4 2016.

  • National workloads still positive with the private housing displaying strongest momentum
    Road and rail set to be the fastest growing infrastructure sectors over next twelve months
    Expectations for workloads, employment and profit margins improve

An overview

Following a noticeable dip around the time of the EU referendum, expectations for output growth over the year to come strengthened for the second consecutive report. Indeed, the twelve month workloads expectations series improved to post a reading of +57% (following +49% and +23% in Q3 and Q2 respectively).

Alongside this, employment expectations improved for the second straight report, with 41% more respondents anticipating a rise in construction sector employment over the year to come. As such, both employment and workload expectations have now recovered to their pre-referendum levels.
The latest results point to modest growth across the sector in the final quarter of 2016, with 18% more respondents reporting an increase in total workloads. However, while the data is broadly positive, the anecdotal comments left by chartered surveyors do continue to highlight uncertainty surrounding the departure from the EU to be dampening investment and activity.

During Q4, output increased in most sub sectors except public non-housing. Following the pattern of the last three quarters, the strongest quarterly rise in workloads was reported in the private housing sector. 27% more respondents cited an increase in private housing workloads (rather than a decrease). A rise in workloads was also reported in the private commercial and infrastructure sectors.

Meanwhile, both output and input costs rose in Q4 2016 with input prices extending a run of uninterrupted growth stretching back to Q2 2010.

Forthcoming

Over the next twelve months, respondents continue to expect the road and rail sub categories of infrastructure to post the most significant increases in construction output at the national level. Regionally, expectations for growth in railway output lead the way in London, the North West, Yorkshire & Humberside, Wales and the West Midlands. Meanwhile, expectations for growth in road construction activity come out on top in all other areas of the UK.
Skill shortages continue to be a key impediment to growth in the sector, although they have eased in five consecutive reports. Interestingly however, the one area that remains a particular concern is the shortage of quantity surveyors with 66% of respondents highlighting a gap. This is the highest figure since 2008.

Jeremy Blackburn, RICS Head of Policy said “Many firms are currently having to bring construction professionals in from outside the UK. The lack of quantity surveyors consistently apparent in our survey is also underscored by the fact that, at the moment, under the government’s Shortage Occupation List, it is easier to employ a ballet dancer than a quantity surveyor.

“Even if we were to reverse this and also ensure that through Brexit we maintain access to EU workforce, we would still have a domestic shortfall of skills. The Industrial Strategy is a golden opportunity to align education, training and employer work paths – along with modern methods of construction – to ensure we have the skilled workforce to meet our building targets.”

Simon Rubinsohn, RICS Chief Economist, added “The latest results suggest that the construction sector has shrugged off concerns about the effect of Brexit with key workload indicators remaining firm around the country. Indeed, feedback regarding the outlook over the next twelve months is now rosier than it was back in the autumn with more building anticipated as 2017 unfolds.

“That said, there remains some unease about access to skilled labour in the emerging new world and financial constraints still remain a major challenge for many businesses. And significantly, we are being told that a shortage of quantity surveyors is impacting on the development process at the present time.”

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Construction workloads still rising despite uncertainty

Building activity is still rising despite uncertainty in the economy, according to the latest RICS (Royal Institution of Chartered Surveyors) and Tughans Northern Ireland Construction Market Survey.

Workloads were still rising in the third quarter of the year, according to Northern Ireland surveyors, with only a very modest slowdown in activity relative to Q2.

Housebuilding remained a key source of workload growth, with private housebuilding activity rising particularly strongly (a net balance of +48). Private Commercial activity was also rising relatively robustly (+23), according to the survey.

In contrast however, infrastructure workload growth remained weak (+5), and significantly below the UK average (+17).

Looking ahead, Northern Ireland surveyors are upbeat about the prospects for growth, with a net balance of +50% expecting workloads to be higher in a 12-month horizon.

The picture painted by the Q3 survey is one of growth, and expectations have improved following the immediate shock of the vote to leave the EU. However, Northern Ireland’s construction sector remains heavily dependent on work in GB, and the survey tells us, crucially, that infrastructure activity remains very subdued. There is also anecdotal evidence from respondents suggesting that uncertainty still remains on the outlook for the year ahead.

RICS Construction Spokesman for Northern Ireland, Jim Sammon said “Infrastructure investment from both the private and public sectors, is essential to delivering long term growth, particularly as we seek to continue to attract Foreign Direct Investment.

The latest survey chimes with much of the other data of late, which has pointed to a stronger economy than perhaps had been anticipated. Activity inside Northern Ireland itself may remain subdued, other than an uptick in residential development, but the local sector continues to find work outside of Northern Ireland, demonstrating the quality of the work our local professionals deliver. Clearly some uncertainty lies ahead, but on the positive side, the weakening of sterling could help increase the competitiveness of Northern Ireland companies working south of the border.” concluded Michael McCord, Construction Partner, Tughans Solicitors.

Read the full survey results here.
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