Brexit uncertainty constrains construction sector optimism
The uncertain outlook for the UK economy has led to reduced optimism, according to the results of the Q3 2019 RICS UK Construction and Infrastructure Market Survey. With anecdotal evidence from respondents suggests that the housing market slowdown, coupled with unrelenting Brexit and political uncertainty, is weighing on investment decisions.
The survey results 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.
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.
Jeffrey Matsu, RICS chief economist, comments:
“As the country heads to its third general election in five years, the mood music across the sector is relatively downbeat. However, while the pace of construction activity has moderated since the referendum, order books remain full as surveyors work through a backlog of previous projects.
“The outlook has the potential to materially improve, depending on the amount of fiscal spending that is authorised by government in the next spending review. Such pump priming has disproportionately supported construction and infrastructure works in the past.”
Hew Edgar, RICS head of government affairs, adds:
“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.
“MMC can supplement existing capacities, support alternative models for delivery (AMD), increase delivery rates while reducing energy use in the development process. We firmly believe that once fully embraced and embedded, MMC will improve our capacity to assist housing demand.
“We urge the future Government to support MMC both directly through investment and indirectly through encouraging and incentivising construction of further MMC factories in areas of high unemployment as part of the Industrial Strategy and strengthening its presumption in favour of MMC in public infrastructure schemes”
