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Post your Events Construction levels fall as spending cuts begin to bite
RICS UK Construction Market Survey Q2 2010
Construction work began to decline again in the second quarter of the year, as fears over the scale of public spending cuts and ongoing uncertainty about prospects for the economy hit the construction industry, says the latest RICS Construction Market Survey, published today (18 August 2010).
Despite some encouraging signs at the beginning of the year, the latest data shows seven per cent more surveyors reporting a fall than rise in total construction workloads. This is in comparison to the previous quarter where five per cent more surveyors reported rising, rather than falling workloads.
Most sectors of the construction industry experienced a drop in workloads, although private commercial and residential were both broadly unchanged. Perhaps unsurprisingly, in light of cuts to budgets, public housing and other public works were the worst affected sectors, with the net balances sliding from 3 to -26 and 0 to -33 respectively. The large fall in the public works sector has been attributed to the suspension of the Building Schools for the Future programme (BSF).
In the North of England it was a similar picture of falling workloads and confidence. The number of chartered surveyors in the region reporting reduced workloads increased in Q2 to -15 percent from -7 percent in Q1. This is now the eighth consecutive month that workloads have fallen in the North.
In the northern housing markets, -25 percent reported declines in public sector work and -15 percent in private sector both an increase on the previous quarter. The public non-housing market saw a significant drop in workloads with 40 percent more chartered surveyors reporting a fall than a rise, up from 12 percent in Q1.
Across the UK, the only regions which escaped falling workloads were the South East and London, however even here workloads only stabilised, rather than increased. Elsewhere, workloads fell, with Northern Ireland recording the worst reading; 75 per cent more surveyors reported falling than rising workloads there, compared with a -59 per cent reading in the first three months of the year.
Just one per cent of surveyors reported having problems procuring workers (down from three per cent in Q1 2010) reflecting the competition among tradesman for work as construction projects diminish. Alongside this, surveyors' future expectations for employment revealed 16 per cent more surveyors expect employment to fall than rise over the next year, compared with -5 percent in the previous three months.
The outlook for output and profit margins has also turned more negative. Profit margin expectations have been the most adversely affected, with 49 per cent more surveyors expecting profits to fall rather than rise.
RICS North East spokesperson on the construction sector and a chartered surveyor at Summers Inman, Michael Henning said: "The survey results are showing a truly mixed bag, which is a fair reflection of the North East construction market.
"There is no doubt that a negative atmosphere has developed in the sector as a result of the cuts in public-funded construction programmes that have already taken place, and with more bad medicine anticipated we are expecting another hard year ahead for the region.
"That is not to say that construction workload has dried up completely, as some sectors will be less affected by the cuts, but it's a very tough and competitive market with everybody fighting hard for the work that is out there."
Commenting on the national picture Simon Rubinsohn, RICS chief economist, said: "This survey suggests that it is too early to conclude that the construction industry is on the road to recovery despite the strong contribution the sector appeared to make to the latest GDP data. Significantly, spending cuts are already having an adverse effect on sentiment and although the cost of tradesmen and overheads continue to fall, raw material prices are rising - creating a difficult operating atmosphere.
"Surveyors are also reporting an increase in competition for work as larger firms bid for smaller projects. Meanwhile, a continued lack of clarity from the government on existing projects is adding to the uncertainty. Given all these factors, it's of little wonder respondents to the survey are feeling gloomy."
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