Skills shortages biting construction sector once more

Workloads in UK construction and infrastructure continued to rise in Q3 2017, according to the latest RICS UK Construction and Infrastructure Market Survey, with 22 per cent more respondents seeing a rise in workloads of the quarter, with a steady pace of growth. However, while activity 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.

Shortage of skilled workers

Having eased throughout 2016, the intensification of labour shortages is biting once more in the quarter with 62 per cent of contributors citing this as an impediment to growth. This contrasts with an average of 40 per cent when data collection first began in 2012. Within this, respondents to our survey are still seeing a lack of quantity surveyors (64 per cent) as well as other professionals (52 per cent). Forty-four per cent are also seeing a shortage of workers within specific trades. Despite government efforts to bolster the workforce and the prominence of apprentices, through an apprenticeship levy introduced earlier this spring, only 42 per cent of respondents feel that governmentfunded programmes are moderately effective, with one-third unsure. The quality of the talent pipeline is insufficient as well – less than half (45 per cent) of employers who currently hire apprentices view them as a long-term solution to their hiring needs.

Sector workloads

Breaking the rise in workloads and activity down to a sector level, growth is strongest in the private housing sector, while remaining broadly stable elsewhere. Meanwhile, the public non-housing sector continues to underperform all others. In infrastructure, 21 per cent more contributors reported a rise rather than a fall in workloads. Nationally, respondents expect the rail and energy sub-sectors to post the most significant increases in construction output over the coming 12 months. Despite uncertainties, a net balance of 45 per cent of respondents expect headline activity to continue to rise rather than fall over the year ahead. Nevertheless, this is down from the four quarters immediately preceding the EU referendum, which averaged 62 per cent, reflecting a somewhat less optimistic outlook. Meanwhile, 30 per cent more contributors expect employment to rise rather than fall (broadly unchanged from Q2).

Other impediments on construction growth

While profit margins, a shortage financial of workers constraints is hampering are still activity reported and to pose the most significant challenge, although the share of contributors expressing this view has come down to 69 per cent (from 79 per cent in Q2). Access to bank finance and credit remains by far the most frequently cited 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 per cent of respondents expecting a rise in margins over the coming year. This is likely to have impacted tender pricing as well, with 62 per cent and 56 per cent more respondents in the building and civil engineering areas, respectively, envisaging greater price pressures. The view from RICS, ‘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.’