Workloads fall but private house building offers construction sector new hope
Q3 2020: RICS UK Construction and Infrastructure Survey
- Construction workloads fall but at a reduced rate compared to the previous quarter;
- Infrastructure and private housing seen as leading the sector over the next year
Construction workloads have fallen for another quarter as the sector grapples with the economic effects of the COVID-19 pandemic, but growth expected from upcoming private house building and infrastructure projects buoy the sector’s chances of a recovery.
While cross-sector workloads fell by a net balance of -7%, this is less than the previous fall of -36% in Q2. However, when compared with last year’s industry average of +11% it shows UK construction is far from full recovery.
Breaking down across each sector, workloads fell across the private commercial and ‘other’ public works categories with net balances of -21% and-12% respectively. Alongside this, workloads were seen remaining broadly unchanged over the quarter across the private industrial, private and public housing as well as the infrastructure segments following reported declines in Q2.
Respondents said that financial constraints and shortages of materials, coupled with insufficient demand, were the main reasons given for the subdued activity. 31% more respondents also cited a deterioration in credit conditions, which is having a negative impact on the cashflows of some businesses.
Looking ahead 21% more respondents expect private housing workloads to rise rather than fall in the coming year – offering the construction sector a glimmer of hope as it recovers from COVID-19. Anticipated changes to the planning system, an extension to Help to Buy as well as the stamp duty holiday look likely to support growth in construction activity.
However, with no significant change in new business enquiries, it is unsurprising that profit margins are envisaged to decline over the course of the next twelve months with a net balance of -28% of respondents expecting a fall.
Simon Rubinsohn, RICS chief economist, said: ”With a new lockdown now underway, these are clearly very challenging times for the economy.
“The government’s commitment to delivering on its infrastructure programme provides a ray of light with the survey pointing towards a solid increase in workloads over the next twelve months which could play an important role in helping to drive a wider recovery in business activity.
“The private residential sector is also expected to see solid growth aided by the various policy initiatives that are still in play. However, commercial development is anticipated as being flatter in the face of the structural pressures facing both offices and retail.”