Member Article

Latest figures show North East construction sector flourishing

Construction workloads rose in the North East during the second quarter of the year with 43% more surveyors in the region reporting higher activity levels, up from 34% in the previous quarter, according to the latest RICS Construction Market Survey Q2 2015.

The latest data shows that workloads increased across all sectors in each part of the UK, and was more widespread throughout England, Wales and Scotland, while the pace of growth in Northern Ireland was more modest. Encouragingly, 73% more respondents in the North East also expect to see their workloads rise over the coming 12 months.

Over half (57% net balance) of respondents in the North East reported higher workloads in the private commercial sector (compared to 38% in Q1), whilst 38% reported an increase in activity in private industrials (up from 18% in Q1). More infrastructure projects also got underway in the region with 34% of respondents reporting a rise in workloads in this sector (compared with 29% in Q1). Meanwhile, 29% more respondents reported an increase in new office developments too – up from 6% in Q1.

Activity in London and the South East appears to be stronger than elsewhere in the UK and as a result, profit margins and employment expectations are higher in these parts of the UK than anywhere else (62% more respondents expect to take on more people over the next 12 months and 58% expect higher profits). However, the construction market in the North East is faring well, with 47% of respondents expecting to increase their team over the coming 12 months and 50% anticipating an increase in their profit margin over the coming year.

However, skills shortages remain a worry for North East surveyors, with 44% more respondents saying they were concerned about the lack of skilled workers in the industry. Financial constraints and issues with planning and regulation remain other key restraints on growth in the sector with 58% more surveyors reporting difficulties in Q2. In addition, 40% of respondents reported shortages of materials, but this is substantially lower than the 60% who were having such difficulties through most of 2014.

Michael Henning, Director at Henning Project Management, said: “Construction activity has achieved a sustained period of growth since the start of the year. Availability of skilled tradespeople remains a constant issue as the historic lack of investment and inability to encourage more young people into apprenticeships is affecting some sectors return to growth. Plus, competition between builders trying to lure skilled people is an issue in stronger sectors.

“Overall, things have clearly improved and the outlook to the end of the year is positive, with projects that have been on hold now moving to start on site. However one consequence of this growth is cost increases in materials and labour that, if not properly managed, can create instability in a market that has seen some high profile casualties in recent months amongst regional and national construction companies.”

RICS Director of the Built Environment, Alan Muse, added: “The upturn in workloads has led to a less competitive tendering environment, particularly across public sector projects, but a lack of accessible finance is now affecting a net balance of 58% of our members.

“Also, typical as workloads recover is the emergence of other impediments to growth - outside of labour and finance constraints - such as planning and regulatory barriers, which could be exacerbated if cuts are made to local authority planning departments, as backlogs in planning applications could have a knock-on effect to work pipelines.”

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