South East: Construction picks up but labour shortage is a concern

Construction and infrastructure workload expectations continue to improve with the most positive outlook since the referendum, according to the latest Royal Institution of Chartered Surveyors (RICS) South East Construction Market Survey, Q1 2017.  The pace of growth has also quickened across all sub-sectors.

In Q1 2017 22% more respondents in the South East reported an increase in workloads, (up from +7% in Q4 2016). Expectations for the next 12 months also remain firmly positive in the region particularly for activity levels although they have reduced slightly in case of profit margins. The shortage of skilled labour persists in UK infrastructure and construction and is again widely cited by contributors as a factor potentially impacting the performance of businesses working in the industry. 

Looking at the different sectors, 29% more respondents cited an increase in private housing output rather than a decrease, which puts it above the other sectors for the pace of growth. The commercial sector saw the largest growth in workloads compared with the last quarter with 22% more respondents seeing a rise. Infrastructure workloads continue to grow steadily with the most significant increases in rail, road and energy categories. These sectors are also viewed as the most promising sectors in infrastructure for the next twelve months.

As workloads increase, skill shortages are still sighted as a significant problem to the industry with 66% of respondents stating a shortage of skilled labour to be a key impediment to growth. (up from 62% in the last quarter). 

Alongside this, 64% of respondents reported insufficient availability of quantity surveyors in the South East, with skill shortages in this area becoming increasingly prominent since 2012.  National results also point to the quality of available workers (rather than simply the quantity) being the principle driver in skill shortages, with 67% of respondents taking this view. Looking at this further, 59% of contributors feel that improved education pathways and training would the most effective policy response to alleviate labour supply pressures, whilst 31% of contributors feel direct government subsidisation of training would be the most effective. 

Meanwhile, financial constraints are still the most significant obstacle to growth in the South East with 64% of respondents citing this as an issue. Planning and regulation remains a significant impediment to growth with 76% of respondents citing this as an obstacle (up from 53% in Q4 2016). 

The South East has observed an increase in pace of output growth in Q1. This was due to the pace of growth rising within the infrastructure, private industrials and public non-housing sectors. Output growth gathered the most pace in the South East and London where the net balance rose from +7% to +22%.

Jeff Matsu, senior economist, commented on the latest RICS survey data:  “The mood music in the construction sector has improved in line with the better tone to macro-data more generally. However, the survey does highlight some key challenges that need to be addressed if government’s ambitious plans for housing and infrastructure, in particular, are to be met. Access to finance, alongside planning and skill shortages, both quality and quantity, remain big obstacles to delivery and though some plans are in place to address these issues, it remains to be seen whether they are sufficient to make a meaningful impact.”