Construction sector optimism weakens in the East Midland’s as workloads fail to pick-up

RICS UK Construction & Infrastructure Market Survey, Q3 2019

• Construction workloads fail to pick-up across most construction sectors in the East Midlands

• Addressing housing supply: 40% believe that Build to Rent will be a game-changer in increasing housing supply within 10 years & 53% see modern methods of construction feature more prominently in projects

The housing market slowdown, coupled with unrelenting Brexit and political uncertainty is weighing on investment decisions, and leading to reduced optimism in the East Midlands’ construction sector, according to the results of the quarterly RICS Construction and Infrastructure Market Survey.

The survey results point to a notable flat trend in workloads, with 12% of the region’s construction professionals reporting a rise in workloads during the third quarter of the year (Q3), unchanged from 12% in the second quarter of the year (Q2).

Looking at the region’s property sectors; construction activity on public housing schemes fell during Q3, with 7% of respondents reporting a rise on public housing projects (down from 21% in Q2). However, 24% of contributors saw an increase in private housing starts in Q3 (up from 13% in Q2).

When questioned around how the industry can help address housing supply,  40% of contributors believe that Build to Rent will be a game-changer in increasing housing stock within ten years; whilst 53% 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. This is likely to positively impact delivery speed, and capacity issues.

Activity on commercial developments and infrastructure schemes – such as road and rail networks – also failed to pick-up in the East Midlands during Q3, yet a more positive 13% of respondents reported a rise in activity on industrial projects (up from 4% in Q2).

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

Furthermore, whilst the survey has long highlighted the issue of a lack of access to skilled labour, this quarter the shortage of skilled professionals is even more pressing with 37% of respondents citing this as an obstacle to growth in Q3 – up from 30% in Q2.

Looking ahead, sentiment for workloads over the next 12-months eased in Q3, with 22% of contributors anticipating construction activity rising over the year ahead (down from 41% in Q2).

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.”