Construction workloads a mixed picture while infrastructure remains an area of strength

RICS UK Construction Monitor, Q2 2023

• Financial constraints as well as labour supply are the main near-term challenges for the sector
• Continued strong focus on workforce training evident in feedback
• Residential workloads expected to be flat over the next twelve months
• Profits picture viewed as likely to remain under pressure

The Royal Institution of Chartered Surveyors (RICS) UK Construction Monitor Q2 2023 portrays a mixed picture when it comes to industry trends. The headline construction workload reading tilted downward a touch to -1% from +3% in the previous quarter, remaining a very flat figure. According to respondents, the credit environment unsurprisingly continues to deteriorate, and financial constraints are singled out as the number one factor limiting construction output.

Despite the headline flat picture, there are significantly divergent trends at the sector level. Infrastructure remains the strongest growth area for the industry, showing a clearly positive +17% reading this quarter. In contrast, private housing gave a reading of -12%, pretty much returning to where it was at the end of 2022. The only point at which is gave a softer reading than this was in the aftermath of the Global Financial Crisis.

Many respondents voice their concerns about the ongoing broader economic challenges and money-tightening policies of the Bank of England negatively impacting the industry. Credit conditions appeared to worsen over the past quarter with a reading of -42%.  Indeed, financial constraints are considered the top issue holding back construction activity with 64% of respondents considering this a challenge.

Further to the financial constraints, skills and labour shortages continue to hamper activity. More than 50% of respondents note difficulties recruiting quantity surveyors, while bricklayers and carpenters are also in high demand. There is no sign of this ongoing problem abating soon, however many in the industry plan to tackle it through investment with +25% of respondents looking to increase spending on training programmes.

Despite these elements holding back activity, the construction sector remains moderately positive about the future. In terms of workload expectations, infrastructure still leads the way, with a balance of +27% of respondents predicting an expansion, while commercial workload expectations remain relatively upbeat (+12%). Only in private housing does the picture look somewhat downbeat, but those figures are broadly flat.

RICS Chief Economist, Simon Rubinsohn, said:

“Feedback to the Q2 survey shows the rising trend in base rates is leading to increased financial pressures in the construction industry. This is not anticipated to lessen any time soon and is also reflected in the cautious assessment regarding the outlook for profitability. However, there are some signs of an easing in the extent of skill shortages which is accompanying the flatter trend in activity. Infrastructure numbers remain solid, but the survey provides further evidence of the challenges in delivering residential developments at the current time.”

RICS Head of Professional Practice - Construction, Amit Patel, said:

“We welcome the recent government announcement on committing to delivering one million new homes this term - a sign of confidence for the residential construction sector, but recognise it is less than the 300,000 annual target they set.

“Realistically, to deliver on housing targets, investment is needed to build up a diverse future pipeline of construction skills, in particular to embrace digital and green technologies. In the short term, however, there should be more flexibility for international recruitment. We advised the Migrant Advisory Committee (MAC) in their recent review of the Shortage Occupation List (SOL) that the built environment professions including quantity surveying should be on the list of ‘skilled’ occupations that have been assessed to be in shortage in the UK which could be addressed through the recruitment of overseas workers.”

-ENDS-

You may access a full copy of the Q3 UK Construction Monitor at this link.

Commentary from survey respondents regionally can be found in the economic pdf on the back pages – you are free to use these.

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