RICS: Scottish construction sector subdued, but outlook remains positive

Private housing workloads are upholding growth in the Scottish construction sector, despite political uncertainty, but supply is still falling short, according to the RICS UK Construction and Infrastructure Market Survey, Q1 2019.

Amidst political uncertainty workloads across the Scottish construction sector are starting to show a change in focus. Growth in workloads slowed across nearly all sectors this quarter.

At the headline level, only +2 per cent more respondents in Scotland reported a rise in workloads, the lowest net balance in three years.

Once again, workloads in private housing are holding up the sector, as a net balance of +16 per cent of contributors report an increase in activity. Private commercial results were also steady, with +8 per cent more respondents reporting growth. In contrast, public housing and non- housing workloads saw a decline during Q1, with a net balance of -30 per cent and -14 per cent more chartered surveyors reporting a drop in activity across Scotland respectively.

Workloads in infrastructure were also subdued this quarter, as a net balance of -5 per cent more respondents reported a decline, down from +8 per cent in Q4.

Across the UK chartered surveyors continue to report the impact that financial constraints are having on building activity. This quarter, 81 per cent of surveyors cite this as an issue, making this the highest reading recorded in the past five years. Anecdotally respondents suggest that stricter conditions that are being placed on firms by financial institutions are limiting growth, with SMEs being particularly impacted. Additionally, lack of skilled labour was stated as an inhibitor to growth, with 44 per cent of respondents reporting a shortage of skilled construction professionals across the sector in Scotland.

Looking ahead, contributors in Scotland are more positive, with a net balance of +19 per cent more respondents expecting to see workloads rise in the coming twelve months. This is teamed with a steady outlook for employment, although more restrained than previous quarters, with +8 per cent more respondents predicting a rise in employment within the sector. Expectations on profit margins have contracted, as tender price expectations slow.

Looking across the UK regions, housing and infrastructure activity have supported workloads in the South West, Wales, Midlands, East and the North, with workloads remaining broadly flat elsewhere. Looking ahead, respondents in the North are the most optimistic as they expect workloads to grow and more hires to take place (+43 per cent and +26 per cent respectively).

Jeffrey Matsu, RICS Economist said: “Although market confidence has become more subdued in recent quarters, the outlook for workloads and employment growth has modestly improved. While prolonged Brexit-related uncertainty has taken a toll on business investment, its resolution has the potential to unleash pent-up demand that can be supportive of future growth.”

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