Infrastructure spending helps Scotland recover from slowdown

With the Scottish Parliament fiasco nearing a close, Scotland’s construction industry is dusting itself off and showing signs of strength.

New construction work in Scotland has been rising steadily for the past four years, contributing 9.7% of UK output in 2001 and 10% in 2004, according to the RICS (see graph). The performance is particularly impressive since Scotland contributes roughly only 5% of the UK’s GDP.

Housing, particularly in the private sector, is leading the growth. Scottish projects contributed 11.2% to UK private housing output in 2001 and 12.8% in 2004.

Developers have submitted plans for Scotland’s tallest building, a 42-storey complex of flats and hotels at the former Strathclyde Regional Council site on the Clyde.

The government is spurring the trend by putting pressure on local authorities to boost housing, according to Tony MacKay, economist at Inverness-based MacKay Consulting.

Infrastructure is also strong, with output growing from 9.8% in 2001 to 12.3% in 2004.

MacKay said both public and private housing projects were happening throughout Scotland, but particularly in the centre of the country. The main hotspots are Edinburgh, west and east Lothian, north and south Lanarkshire and Inverness.

Figures from the Scottish Executive on the housing sector showed there were 25,100 completions in 2004, which was 5.6% more than the previous year. This has picked up further this year, with 6,998 completions in the first quarter of 2005 alone, marking an increase of 33% compared to the first quarter of 2004.

The houses that are being built are mainly one and two bedroom flats at the bottom of the market, MacKay said. “There’s not a lot of action at the higher end of the market in the £400,000 plus area, but there’s a big increase in building for housing associations.”

There’s not a lot of action at the higher end of the housing market

Tony MacKay, economist, MacKay Consulting

There has been a shortfall in house building in Scotland for several years. MacKay said between 23,000 and 24,000 houses were built annually for the past three years, but Scotland needs 30,000 a year, according to house builders association Homes for Scotland. “Now we are catching up and the signs suggest we’ll maintain this level activity for several years,” he said.

The Scottish economy has performed poorly in recent years, averaging growth of just 1.6% a year for the past three years, MacKay said. “Construction has been tied to this, so most growth (in the past three years) has come from public sector spending, which has created much work on transport, roads and airport projects.”

David Burns, who runs the Scotland and northern England office for Currie & Brown, said housing and the public sector were among the best areas for his firm in Scotland. One of Burns’ key projects is a £160m residential development at City Dock on the south side of the Clyde, currently at the detailed design stage, on which Currie & Brown is the cost manager.

Some sectors are lagging, however, according to the RICS figures, which show that both commercial and industrial have fallen back. In the commercial sector, Scotland slipped from contributing 10.6% of UK output in 2000 to 7.7% in 2004.

In industrial the country slipped from contributing 9.7% to 6% during the same period.

Burns added that even in the good sectors, growth was very intense in the central region of Scotland, leading to the potential for over-heating, which in turn would result in a dire skills shortage.

Burns appears to be positioning himself to handle this. He recently created 42 new positions in Scotland, although many have yet to be filled. New recruits include senior project manager Paul Fairie and cost manager Morag Murray, who have joined the Glasgow office, and cost management graduate Yoke Wong, based in Aberdeen.