The latest Construction and Infrastructure Market Survey by the Royal Institute of Chartered Surveyors (RICS) revealed that 11% more chartered surveyors reported that workloads in Scotland had risen as opposed to fallen during Q1 2018. While 67% of respondents across the UK noted bad weather conditions as a limiting factor, the ‘Beast from the East’ was not enough to slow the pace of growth.
The RICS quarterly series suggests the construction sector has largely enjoyed a period of steady growth since the early part of 2018 as the industry has geared up to meet the demands of a stronger economy.
Scottish workloads increased across infrastructure, private housing and public non-housing in the early part of the year, with both new work and repair and maintenance activity rising steadily. Private housing in Scotland saw the strongest rise in workloads with 25% more respondents citing an increase rather than a decrease. This contrasts with the public sector where the pace of workloads dipped slightly with a net balance of -8% in housing (+27 in Q4 2017).
In infrastructure, 8% more contributors reported a rise rather than a fall in activity, and on a UK level, respondents expect the rail and energy categories to post the most significant increases over the coming 12 months.
Higher input costs and a shortage of labour continue to restrict growth in profit margins. And even though cost pressures may ease later this year, expectations for the expansion margins are still well below the three-year average of 40% recorded between 2014 and 2016. Indeed, tender prices are expected to rise over the next 12 months with respondents in both the building and civil engineering sectors envisaging greater price pressures.
Besides the one-off factors related to inclement weather, labour shortages remain the key impediments to growth. The lack of sufficiently skilled workers, particularly with regards to professional services such as quantity surveying is particularly challenging; around 80% of contributors in Q1 highlighted this as an impediment to growth. Indeed, the share of respondents reporting insufficient availability of quantity surveyors across Scotland was the highest in ten years.
In an extra question added this quarter, 85% of respondents were of the view that small and medium-sized firms are the most impacted by constraints on financing.
Despite the constraints that firms have been facing recently, surveyors remain relatively upbeat. Net balances of 44% and 25% of respondents expect workloads and employment levels, respectively, to continue to rise over the coming 12 months across Scotland.
Jeffrey Matsu, RICS senior economist, said: “While a short-lived snowstorm may have snarled logistical supply chains and site works at the end of February, it was not enough to negatively impact on workload order books. Indeed, several years of limited spare capacity have resulted in a backlog within the delivery pipeline which will take some time to unwind. Risk aversion by both lenders and developers, in the wake of Carillion and ongoing Brexit negotiation, will continue to weigh on investment decisions.”