Brexit uncertainty reduces construction sector optimism

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The results of the Q3 2019 RICS UK Construction and Infrastructure Market Survey has shown reduced optimism due to an uncertain outlook for the UK economy

Evidence suggests housing market slowdown and investment decisions are coupled with Brexit and political uncertainty.

The Construction and Infrastructure Market Survey pointed to a notable declaration in workload, with this quarter only reporting a 10% increase in total workloads. This is down from an average of 33% between 2013 and 2016.

Workloads in the commercial and industrial sectors are at a near standstill. Infrastructure reports the strongest rise, with 18% more respondents citing an increase, rather than a decrease in infrastructure workloads compared to in Q2.

Activity in both private and public housing has decreased with net balances of 14% and 11%, respectively, down from +26% and +22% in Q2.

40% of respondents believe that Build to Rent will be a game-changer in increasing housing supply, and 53% believe that modern methods of construction have featured more prominently in projects in the past three years. Which is likely to positively impact delivery speed and capacity issues.

Workloads for the year ahead

The Construction and Infrastructure Market Survey suggested workloads for the year ahead 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 possibly depending on HS2, Crossrail and Transport for the North’s network of programmes.

The survey continues to highlight financial constraints to be the most significant hindrance. Respondents also report a deterioration in credit conditions over the past three months and 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. 41% of respondents cited this as an obstacle to growth, the joint lowest net balance in over five years.

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

Jeffrey Matsu, RICS chief economist, said: “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.”

Hew Edgar, RICS head of Government affairs, added: “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.”

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