11 September 2018

Contractors report rise in residential construction output, but labour availability remains a concern

Results of the second Build UK State of Trade survey for 2018 show that Contractors expect increased residential construction activity to offset weakness in other sectors over the coming months.

The survey, which was undertaken with Glenigan, found that a balance of 22% of contractors expect their overall workloads to rise next quarter. A smaller balance of 11% of firms expect their output to rise over the next 12 months.

Expectations of residential-led growth follow a weakening in output during the first quarter of 2018. However, contractors reported a rise in residential construction output. In addition, firms saw a rise in residential new enquiries that is anticipated to help sustain activity during the second half of 2018.

Contractors have become more cautious over their employment requirements. The proportion of firms planning to increase the size of their workforce, both during the third quarter and the next twelve months, was matched by a similar proportion expecting their headcount to fall.

Despite the stabilisation in overall employment requirements, labour availability remains a concern with 14% of contractors reporting that the recruitment of experienced and skilled labour had been more difficult than during the previous three months. Firms report labour availability issues are impacting on business performance; 43% of firms saying that labour shortages had resulted in the late completion of work and over a quarter (29%) reporting that it had prevented them bidding for work.

Where contractors had experienced difficulties in recruiting staff, firms cited lack of experience as being an issue in 52% of cases. Lack of skills and required qualifications were cited as factors in 47% and 33% of cases respectively.

Recruitment difficulties also appear to have fed through to labour costs, with 75% of firms reporting that their labour costs had risen during the second quarter and 50% reporting that they were higher than a year ago.

Firms have seen widespread increases in material costs. 88% of firms reported that material costs were higher than during the first quarter of 2018 and 62% reporting an increase on a year earlier. Rising labour and material costs have increased overall building costs, with 75% of firms reporting an overall increase in costs during the second quarter.

The sustained increase in construction costs has now fed through to tender prices. 50% of firms had increased their tender prices during the second quarter against both the preceding three months and a year ago. This contrasts with 18% of firms reporting a weakening in tender prices during the first quarter. The rise in tender prices appears to have been sufficient to stabilise contractors’ profit margins after the squeeze experienced in the first quarter.

The full report can be found on the Build UK website.