Construction sector optimism strained as Brexit uncertainty persists

Image courtesy of shutterstock.com/Kokliang

Brexit uncertainty is continuing to dampen the economy, reducing optimism in the construction sector, the results from a RICS survey.

With anecdotal evidence from respondents suggests that the housing market slowdown, coupled with unrelenting Brexit and political uncertainty, is weighing on investment decisions.

Results from the Q3 2019 RICS UK Construction and Infrastructure Market Survey point to a notable deceleration in workloads this quarter, with only a net balance of +10% reporting an increase in total workloads, down on average from +33% between 2013 and Q2 2016.

Breaking this down, workloads in the commercial and industrial sectors are at a near standstill, with infrastructure reporting the strongest rise, a net balance of +18% more respondents citing an increase rather than a decrease in infrastructure workloads (compared to +20% in Q2).

Activity in both private and public housing has eased with net balances of +14% and +11%, respectively. (Down from +26% and +22% in Q2). As this seems to suggest it will be difficult to fulfil housing building ambition, we asked two additional questions this quarter to assess how the industry might help address housing supply.

The results show that 40% believe that Build to Rent will be a game-changer in increasing housing supply within ten years; and that 53% of respondents are of the view that modern methods of construction have featured more prominently in the projects they have evaluated or undertaken in the past three years. Which is likely to positively impact delivery speed, and capacity issues.

Workloads for the year ahead however, remain positive with respondents expecting the private housing and infrastructure sectors to be the most resilient. Within infrastructure, the energy, rail and roads subsectors are expected to see the strongest growth for the year ahead, alluding to possible dependence on HS2, Crossrail and Transport for the North’s network of programmes.

The survey continues to highlight financial constraints to be the most significant impediment, with a net balance of +68% of contributors citing this. Respondents also report a deterioration in credit conditions over the past three months, and they continue to have concerns over planning delays and regulations.

With the country heading towards a third general election in five years, the mood in the construction sector is downbeat in the face of financial constraints, skills shortages, and slim margins

Whilst the survey has long highlighted a lack of access to skilled labour, this quarter the shortage of skilled professionals is not as severe as it has been, with 41% of respondents citing this as an obstacle to growth, the joint lowest net balance in over five years.

Despite current market conditions, 28% of respondents are reporting an increase in headcount over the past three months.

Hew Edgar, RICS Head of Government Affairs, says: “The UK’s construction sector has shown resilience in its contribution to the economy over a difficult decade. We are, however, at a national level seeing issues such as financial constraints, skills shortages, stagnant productivity, variable quality, output lagging behind target, and slim margins.

“Whilst not the panacea to resolve all these problems, offsite manufacture and modern methods of construction (MMC) represent an opportunity to address many of these issues, and we therefore welcome the establishment of a Champion for MMC.