Squeeze deepens for public sector construction says RICS

The latest RICS Construction Market Survey has shown a clear divergence between private and public sector construction workloads as spending cuts start to take their toll.

It says that the difference between the two has become more apparent during Q2 2011, as the private sector saw further signs of recovery while the public sector was further affected by cut backs.
Construction related to public housing and other public works deteriorated in the three months to June, as Government budget cuts continue to have an adverse effect on the sector. 17 per cent more chartered surveyors reported levels of public housing construction fell rather than rose, while the figure was 24 per cent more for other public works, such as schools and hospitals.

In contrast, private housing and private commercial workloads rose, with three per cent more surveyors reporting a rise rather than fall in private housing construction and 16 per cent more for private commercial works. This is the first time since 2007 that private housing has been positive for two consecutive quarters.

Total construction workloads across the UK edged down in Q2, from a net balance of +6 to +2 per cent, although over half of all respondents noted no actual change in workloads. The main issues for surveyors continue to be a highly competitive tendering environment and a continued lack of funding for projects.

As in many sectors of the UK, there continues to be a wide regional variation in the construction industry’s fortunes. Workloads in London/ South East continued to rise in Q2 – albeit at a slower pace – while in much of the rest of the country workloads were flat or slightly down. The exception to this is Northern Ireland where 64 per cent more respondents suggested that workloads fell rather than rose.

Perhaps unsurprisingly, given the economic climate, profit expectations continue to deteriorate, with the net balance falling from -30 to -34 per cent, reflecting the continuing pressure on margins as input costs rise more rapidly than output prices. Despite this, workload and employment expectations for the coming 12 months remain positive, albeit at low levels (+10 per cent more and +6 per cent more respectively).

RICS chief economist, Simon Rubinsohn said: “The results of the latest RICS Construction Survey clearly highlight the impact of the austerity package being implemented by the government. Public sector related construction projects are being reined in while some tentative signs of recovery are visible in the private sector. It is particularly encouraging that development in the private commercial sphere is continuing to pick-up in the face of the challenging economic backdrop. Residential workloads also continue to edge upwards but, for the time being, at an insufficient pace to meet medium-term housing need.”