Following the introduction of social distancing measures to stop the spread
of coronavirus, the RICS Q1 2020 UK Construction and Infrastructure Market
Survey results are unsurprisingly consistent with a sharp deterioration in
momentum.
The headline workloads indicator has moved into negative territory for the
first time in almost eight years, and market confidence has fallen sharply. As
such, the majority of contributors envisage a fall in workloads and profit
margins as well as a decline in new hiring in the coming year.
However, the survey responses when analysed by date of submission clearly
show weaker sentiment coinciding with the stricter lockdown. Survey responses
that were received from 5th March till the 26th of March were still indicating
a broadly resilient picture for the sector, with the majority of contributors
reporting a pick-up in headline workloads (net balance of +16%).
After this date, between 27th March and 7th April, responses unsurprisingly
signalled a sharp downturn in workloads with a net balance of -21% of
respondents reporting a decline.
Bringing this together, the headline workloads net balance for Q1 2020 came
in at -3% (compared +12% in Q4 2019). Sector wise, momentum slipped
across all market segments apart from infrastructure, where contributors
reported a modest rise in activity (net balance of +11%). Private and
public housing workloads stagnated in Q1, while activity fell in the private
commercial and industrial sectors.
At the headline level, both new work and repair and maintenance also saw a
broadly flat picture, and there was no change in business enquiries for new
projects and contracts in the past three months as a whole (although they fell
noticeably towards the end of the survey period).
Average twelve-month expectations point to a drop in output over the coming
year, with headline workload expectations for the next twelve months dropping
to -13% in Q1 from a net balance of +50% in Q4. When splitting the sample
feedback gathered from the 27th onwards reported a net balance of -40% for
twelve month workloads expectations.
Again, the picture is more resilient in infrastructure, with 36% more
contributors anticipating
workloads to rise rather than fall in the coming year, this figure was still
positive post lockdown (+32% in the final week of survey returns). Within
infrastructure, the energy, road and rail components are expected to see the
strongest growth in output over the coming twelve months.
The RICS market confidence indicator, a composite measure of workloads,
employment and profit margins expectations over the coming twelve months, fell
sharply to -23% from +35% in Q4 (focussing on the more recent survey
submissions shows the indicator falling to -46%). Within this, profit margins
were anticipated to see sharpest fall in the coming year with 43% more
surveyors anticipating a fall. Moreover, tender price expectations have eased
significantly over the quarter in both the building and civil engineering
components.
Simon Rubinsohn, RICS Chief
Economist comments: “It is
hardly a surprise that sentiment in the construction sector fell particularly
sharply following the imposition of the lockdown. More ominously, the forward
looking metrics have also softened materially, suggesting that it will not
simply be a case of returning to where the industry was prior to the onset of
Covid-19 as the government begins to ease the lockdown. Partly this reflects
uncertainty about the likely state of the economy at this point and how this
will impact on development, but it is also indicative of the challenge the
sector is currently under as it attempts to access government funding to keep
heads above water.”
Hew Edgar, Head of Government
Relations, added: “The
supporting measures that the Government introduced in the immediacy for the
built environment – covering pay, rent, and business operating costs to name a
few – were welcome, but it has become apparent that there are gaps that need
addressing; not least parity in approach across the UK.
“The UK Government must start exploring
how the sector could taper the reopening of non-essential construction sites
within stringent parameters of health and safety adherence; introduce grants;
and review how repair and maintenance work could proceed whilst public
buildings are not fully occupied. A combination of these will support
professionals, the workforce, manufacturers and supply chains by providing a
pipeline of work and vital cash flow in the short term.
“Fiscal stimulus is most effective once
the construction starts on site; only then does finance start to flow down the
supply chain. As such, the Government should explore how best to accelerate and
enable the design, planning approval, and procurement of construction projects
to ensure construction-ready schemes can start when the pandemic subsides.”
