South West construction stabilises for year-end as activity expectations bounce

Despite workloads across the South West’s construction and infrastructure sector stabilising for year end, uncertainty over the next stages of Brexit is still holding back investment, according to the results of the Q4 2019 RICS Construction and Infrastructure Market Survey.

This quarter, workloads in the South West continue to rise with 12% more respondents seeing a rise in workloads rather than a fall. It should be noted, that while positive, this figure is well below pre referendum results, when responses averaged a net balance of 32%.

In Q4, private housing has continued to see growth in the region, with 10% more chartered surveyors reporting a rise.

As a potential visible impact of policy change, it is interesting to note that since the start of 2019, workloads in public housing have also risen. An extra question was added to the survey this quarter to ascertain the impact that lifting the Housing Revenue Account borrowing cap has had on social housing at the national level. 23% more South West surveyors reported an increase rather than decrease in expectations for council house building workloads over the coming twelve months.

Activity in the South West’s private commercial sector has also increased in Q4 with a net balance of 15% of respondents seeing a rise, up from 2% in Q3. However, workloads in industrial fell this quarter from a net balance of +2% to -4%.

With 45% of the responses to the latest survey coming in post the General Election result, the RICS market confidence indicator* rose to 35% in Q4, (up from +12% in Q3) suggesting that the end to some uncertainty has renewed confidence in the market.

Even with the increase in workloads, respondents in the South West are still cautious over Brexit. Anecdotally respondents to the survey suggest this is one of the main reasons for holding off on investment decisions. 25% more surveyors will likely decrease investments on fixed assets including equipment and software in 2020, and 33% more intend to curtail workforce development and training. However, when asked how business enquiries for new projects or contracts have fared in the past three months across the region, 17% more respondents report an increase rather than a decrease.

Also, despite ongoing recruitment challenges, and with surveyors continuing to report full order books, a net balance of 38% of respondents have increased their headcount in the past three months. 42% of respondents still anticipate skills shortages to impact growth across the sector for the future.

Jeffrey Matsu, RICS Economist, commented: “While momentum across the industry has eased in recent years, surveyors continue to report full order books and constraints on capacity that suggest anything but a recession. The General Election result last month provided a welcome relief to market confidence with the anticipation of additional fiscal spending to be announced at Spring Budget pushing year-ahead workload expectations higher. That said, the yet-to-be-known relationship with the EU has kept the economic outlook fragile which is affecting businesses intentions to invest.”