Growth slows in private commercial sector

Workload growth has slowed across all sectors of the construction industry, and most sharply in private commercial, according to the RICS UK Construction and Infrastructure Market Survey for Q2 of 2017. 

Anecdotal evidence from respondents suggests that “uncertainty regarding Brexit is weighing on investment decisions, alongside the political turmoil generated from last month’s general election”, the RICS study said.

The most significant easing of activity was in the private commercial sector, where 21% more respondents saw their workloads rise rather than fall in Q2, down from 31% in the prior quarter.

Also worrying was a slide in profit margin expectations from a net balance of 18% to 8% in the latest results. Respondents expect greater price pressures on tenders, in line with the previous quarter.

The more uncertain outlook for the economy as a whole has led to a less optimistic outlook for the sector in the year ahead. Even so, 44% more contributors expect activity to rise rather than fall, down from 53% the previous quarter.

Financial constraints are considered the most significant impediment to building activity, and with a net balance of 79% – up from 70% in Q1 – the highest reading in four years. Economic uncertainty, driven largely by Brexit and the subsequent election result, was identified as the primary cause of the constraints.

Of the other market sectors, expectations for infrastructure workloads are broadly unchanged, with strongest growth in output predicted for roads, rail and energy over the coming 12 months. In the Midlands and East Anglia, activity has been boosted thanks to a surge in infrastructure, but respondents in all other parts of the UK report a fall in workloads.

A net balance of 29% of contributors continue to report a rise in private housing activity, and expectations for the next 12 months remain positive.

Despite the slowdown in growth, skills shortages persist, with 55% of contributors reporting them as a constraint on growth, notably for quantity surveyors and bricklayers.

Jeffrey Matsu, senior economist, said: “Economic and political uncertainty appear to be weighing on sentiment, but all things considered, current conditions and year-ahead workload expectations are holding up rather well, relative to the longer-term trend. Given the ongoing nature of Brexit negotiations, it remains to be seen what impact this will have on financial conditions or the availability of skilled labour to the industry.”