Workloads in the North East’s construction market are still healthy, but activity slowed down during the second quarter of the year, according to the latest RICS UK Construction Market Survey.
This flatter picture is visible across all sectors; 19% more construction professionals in the North East reported a rise in activity over the previous three months (Q2), compared with 34% in the first quarter of the year (Q1), with the most pronounced slowdowns being seen in the region’s private commercial, industrial and housing segments. That said, 27% more contributors still reported a rise in private housing activity – down from 45% in Q1 – while 25% more respondents saw their workloads in the private commercial sector rise rather than fall in Q2.
Significantly, for the second successive quarter, the biggest constraint on output according to respondents is finance and a lack of funding, with 64% highlighting this as the principal challenge. Meanwhile, planning and regulatory delays also remain a key issue with 60% of respondents citing that these are constraining growth.
Skills shortages also remain a problem for the North East’s construction market; 63% of the region’s construction professionals reported a short supply of quantity surveyors (64%) closely followed by a lack of Bricklayers (59%).
The more uncertain prospects for the economy have led to a less optimistic outlook for the sector over the year ahead. Although, putting this in perspective, 27% more contributors still expect activity to rise in the North East’s construction market, rather than fall over this period. On average, contributors foresee their workloads increasing by 1% over the coming 12 months, down from the 2.3% growth predicted in Q1. Expectations for employment growth have also moderated significantly with a rise of 0.1% anticipated, down from 1.5% the previous quarter.
Aside from in Scotland, respondents in all other parts of the UK continue to report a rise in workloads.
Chair of the RICS North East QS & Construction Group, Mark Kearney of Keepmoat said:
“The recent EU referendum result to leave appears to have impacted on larger property investment deals across the private sector, with many seeking at least a price renegotiation. There have been a number of reports released that predict the major consequences of the result for construction. Overall, I feel it is still too early to forecast with confidence the impact of Brexit on the sector. The market remains buoyant at the moment with good levels of activity – this buoyancy will continue if we find ways to close the skills gaps in key trades and improve understanding and viability of alternative funding models.”
Simon Rubinsohn, RICS Chief Economist, commented: “The latest results from our Construction Market Survey suggest that the second quarter of the year saw a further moderation in the growth trend which is not altogether surprising given the build-up to the EU referendum. Significantly, the biggest issue at the present time alongside uncertainty looks to be credit constraints with over two thirds of contributors highlighting this issue as a concern.
“Encouragingly, the swift actions of the Bank of England in creating additional capacity for the banking sector to provide funding to meet demand should help alleviate some of this pressure. Nevertheless, anecdotal evidence does indicate that the challenge for the British government in establishing a new relationship with the EU could see some investment plans in the construction sector scaled back.”