RICS UK Construction & Infrastructure Monitor, Q4 2020
- Infrastructure workloads rebound as private commercial development continues to contract
- Aggregate workloads and employment expected to increase further over the course of 2021
- Rising constructions costs seen as a challenge for profitability
Workloads in UK construction rose for the first time in a year, despite on-going concerns about COVID and a growing weakness in commercial development, according to the RICS UK Construction and Infrastructure Monitor, Q4 2020.
As the UK high street undergoes transformational change, respondents highlight concerns around the structural challenges for both retail and offices that is impacting on development plans. Current workloads across the private commercial sector continued to decline for a fourth successive quarter, posting a net balance of -22.
The Government’s focus on infrastructure spending, as part of their post-COVID recovery plan, is reflected in the uplift in workloads from the infrastructure sector in Q4. This quarter, +26% more respondents reported a rise in workloads across the sector, up from +3% in Q3 and -17% in Q2. Moreover, workloads appear to be rebounding in a number of different areas of infrastructure including energy and communications as well as road and rail. Looking ahead, expectations for infrastructure workloads are also the most upbeat across all sectors.
Other policy measures, such as the temporary stamp duty relief and extension of the Help to Buy scheme to help support the housing market, are also reflected in the latest report. In Q4, the survey points to an increase in workloads across the residential sector, with +12% of respondents seeing an increase in public sector workloads and +10% of respondents seeing a rise in the private sector. Interestingly, as these temporary policies come to an end or are phased out, private development is anticipated to remain relatively resilient over the coming twelve months. Public housing is also envisaged to see further growth, as local authorities slowly upscale their building programmes.
Looking to 2021, workloads at the all sector level are more positive, with the net balance standing at +34%, the best reading since 2019. Respondents are more upbeat about employment opportunities for the year ahead as the series climbs to +17% from -3% in Q3 and -20 in Q2. Meanwhile, the series for profit margins remains negative, with -8% of respondents anticipating profits to fall, however, this is less negative than any point of 2020.
The profitability challenge reflects the potential uplift in construction costs, which are expected to rise in excess of 4% over the next twelve months. Yet, respondents also point to financial constraints and material shortages remaining a challenge moving forward. Finally, skill shortages are an issue for many, but not to the extent that it was a couple of years ago.
Simon Rubinsohn, RICS Chief Economist said:
“This latest RICS data shows the positive impact that stimulus packages can have on the sector and the wider economy. It is now critical the government continues to focus on delivering on its ambitions around ‘levelling up’ and ‘net zero’ while building a sustainable economic recovery using the forthcoming budget to embed these goals. Green infrastructure, which has an important role to play in supporting this approach, needs to be at the forefront of the priority list.
“Although skill shortages appear to have diminished importance as a constraint in output according to the survey, our suspicion is that this reflects the current environment and is likely to re-emerge as the industry gears up over the next few years. It is thus important that a focus remains on promoting training and development across the sector to build capacity to address future challenges. “