South East: Construction workloads rise but skills shortages remain

Workloads in construction and infrastructure in the South East continued to rise in Q3 2017, according to the latest RICS Construction and Infrastructure Market Survey, with 14% more respondents seeing a rise in workloads of the quarter, with a steady pace of growth.  However, while activity in the South East remains steady, comments left by respondents continue to highlight Brexit-related uncertainties as weighing on investment decisions, and the lack of sufficiently skilled workers also remains an obstacle for many businesses.

Skills shortages have been a long-running issue and now the intensification of labour shortages is biting once more with contributors, nationally, citing this as an impediment to growth. Respondents to the survey are still seeing a lack of quantity surveyors (63%) as well as other professionals (54%) across the South East. 46% are also seeing a shortage of workers with specific trades, all hampering growth.

Despite government efforts to bolster the workforce and the prominence of apprentices, through an apprenticeship levy introduced earlier this spring, only 42% of respondents, nationally, feel that government-funded programmes are moderately effective, with one-third unsure. The quality of the talent pipeline is insufficient as well – less than half (45%) of employers who currently hire apprentices view them as a long-term solution to their hiring needs.

Breaking the rise in the South East’s workloads and activity down to sector level, the most growth is being seen in the infrastructure and public non-housing sectors, while remaining broadly stable elsewhere. In infrastructure, 22% more contributors reported a rise rather than a fall in workloads, with a net balance of +19% in public non-housing. Across the South East, respondents expect the rail, road and energy sub-sectors to post the most significant increases in construction output over the coming 12 months.

Despite uncertainties, a net balance of 38% of respondents in the South East also expect activity to continue to rise rather than fall over the next twelve months. Meanwhile, 27% more contributors expect employment to rise rather than fall (broadly unchanged from Q2).

Nationally, while a shortage of workers is hampering activity and profit margins, financial constraints are still reported to pose the most significant challenge, although the share of contributors expressing this view has come down to 69% (from 79% in Q2). Access to bank finance and credit remains by far the most frequently cited financial issue, followed by cash flow and liquidity. This likely reflects a more cautious stance by banks given cyclical market conditions and Brexit considerations.

Higher input costs and a shortage of labour continue to restrict growth in profit margins, with a net balance of only +12% of respondents, nationally, expecting a rise in margins over the coming year.

Jeffrey Matsu, senior economist, commented: “While activity in the sector has moderated, growth and growth expectations remain in positive territory. Uncertainties due to Brexit continue to weigh on companies’ investment and hiring decisions, and banks appear to be adopting a more cautious stance to providing finance. Meanwhile, challenges related to an inadequate supply of skilled labour are as pronounced as ever.”