Credit Constraints Contributing to Slowing Construction Activity, says RICS

CONSTRUCTION activity is expected to slow over the next 12 months, despite currently rising workloads. The pace of growth is starting to decline and expectations for the next 12 months are moderating, according to the Royal Institution of Chartered Surveyors (RICS) UK Construction & Infrastructure Monitor for Q3 2022.

The survey suggests there are now greater concerns about how macro factors may affect the industry, including regarding credit constraints.

The headline reading of construction workload activity for the whole of the industry has lost momentum over the past quarter, with a net balance of +17% of respondents reporting an increase, compared to +30% in Q2.

Slowed Construction Activity

The infrastructure sector is continuing to hold up better than other areas, with a net balance of +32% this quarter. However, momentum has slowed across all categories. Private industrial dropped from a net balance of +28% in the previous quarter to +12% in this quarter, and private commercial dropped from +25% to +10%. For private residential, the latest workloads net balance slipped to +17%, compared to a reading of +29% beforehand.

Business enquiries for either new projects or contracts have also eased, falling to +15% compared to Q2’s net balance of +36%. This underlines the other metrics showing that the market is losing some energy, as does the fact that profit margins are under increased pressure. Expectations from contributors fell to a net balance of -23% this quarter from -14% in Q2 – the worst figure in two years. Turbulent economic conditions, including rises in interest rates and inflation domestically and internationally, are impacting across the market.

Material and Labour Shortages

Shortages in materials and labour, alongside increasing financial constraints are continuing to affect construction. Material and labour shortages were cited by 77% of contributors, while 74% drew attention to a scarcity of labour as factors hindering activity. A lack of quantity surveyors as a key factor holding back construction activity, was mentioned by 56% of respondents.

Simon Rubinsohn, RICS Chief Economist

Simon Rubinsohn, Chief Economist at RICS, said: “The deteriorating macro environment is clearly taking a toll on the construction industry with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour. Indeed, the RICS metric capturing the extent of skill shortages in the sector has barely budged in recent quarters with quantity surveyors and a range of skilled trades in particular short supply.

“Meanwhile, the impact of the shift in the economic outlook is most visible in the residential and commercial sectors where workloads are now viewed as likely to flatline over the coming year. Ongoing commitments to a number of big projects is, however, continuing to support activity in the infrastructure area. The thoughts of the Chancellor on November 17th may provide some clues as to whether this trend is likely to be sustained over the longer term.”

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