RICS Construction and Infrastructure market survey Q1 2020
Following the introduction of social distancing measures to stop the spread of coronavirus, the RICS Q1 2020 UK Construction and Infrastructure Market Survey results are unsurprisingly consistent with a sharp deterioration in momentum.
The headline workloads indicator has moved into negative territory for the first time in almost eight years, and market confidence has fallen sharply. As such, the majority of contributors envisage a fall in workloads and profit margins as well as a decline in new hiring in the coming year.
However, the survey responses when analysed by date of submission clearly show weaker sentiment coinciding with the stricter lockdown. Survey responses that were received from 5th March till the 26th of March were still indicating a broadly resilient picture for the sector, with the majority of contributors reporting a pick-up in headline workloads (net balance of +16%).
After this date, between 27th March and 7th April, responses unsurprisingly signalled a sharp downturn in workloads with a net balance of -21% of respondents reporting a decline.
Bringing this together, the headline workloads net balance for Q1 2020 came in at -3% (compared +12% in Q4 2019). Sector wise, momentum slipped across all market segments apart from infrastructure, where contributors reported a modest rise in activity (net balance of +11%). Private and public housing workloads stagnated in Q1, while activity fell in the private commercial and industrial sectors.
At the headline level, both new work and repair and maintenance also saw a broadly flat picture, and there was no change in business enquiries for new projects and contracts in the past three months as a whole (although they fell noticeably towards the end of the survey period).
Average twelve-month expectations point to a drop in output over the coming year, with headline workload expectations for the next twelve months dropping to -13% in Q1 from a net balance of +50% in Q4. When splitting the sample feedback gathered from the 27th onwards reported a net balance of -40% for twelve month workloads expectations.
Again, the picture is more resilient in infrastructure, with 36% more contributors anticipating
workloads to rise rather than fall in the coming year, this figure was still positive post lockdown (+32% in the final week of survey returns). Within infrastructure, the energy, road and rail components are expected to see the strongest growth in output over the coming twelve months.
The RICS market confidence indicator, a composite measure of workloads, employment and profit margins expectations over the coming twelve months, fell sharply to -23% from +35% in Q4 (focusing on the more recent survey submissions shows the indicator falling to -46%). Within this, profit margins were anticipated to see sharpest fall in the coming year with 43% more surveyors anticipating a fall. Moreover, tender price expectations have eased significantly over the quarter in both the building and civil engineering components.
Simon Rubinsohn, RICS chief economist comments: “It is hardly a surprise that sentiment in the construction sector fell particularly sharply following the imposition of the lockdown. More ominously, the forward looking metrics have also softened materially, suggesting that it will not simply be a case of returning to where the industry was prior to the onset of Covid-19 as the government begins to ease the lockdown. Partly this reflects uncertainty about the likely state of the economy at this point and how this will impact on development, but it is also indicative of the challenge the sector is currently under as it attempts to access government funding to keep heads above water.”
Hew Edgar, head of government relations, added: “The supporting measures that the government introduced in the immediacy for the built environment – covering pay, rent, and business operating costs to name a few – were welcome, but it has become apparent that there are gaps that need addressing; not least parity in approach across the UK.
“The UK government must start exploring how the sector could taper the reopening of non-essential construction sites within stringent parameters of health and safety adherence; introduce grants; and review how repair and maintenance work could proceed whilst public buildings are not fully occupied. A combination of these will support professionals, the workforce, manufacturers and supply chains by providing a pipeline of work and vital cash flow in the short term.
“Fiscal stimulus is most effective once the construction starts on site; only then does finance start to flow down the supply chain. As such, the government should explore how best to accelerate and enable the design, planning approval, and procurement of construction projects to ensure construction-ready schemes can start when the pandemic subsides.”
