The slowdown in the Scottish construction market continued in the latest quarter, with surveyors now pointing to the weakest period of growth since the beginning of last year.
The third quarter Royal Institution of Chartered Surveyors (RICS) Construction & Infrastructure Monitor showed a net balance of +10% of Scottish respondents said that workloads grew, compared to +19% in the second quarter and +39% just five quarters ago.
This trend of a slowdown in activity corresponds with a deterioration in the outlook too.
Expectations for the year ahead fell to their lowest level since the beginning of the pandemic as issues with skills, costs and credit conditions weigh on firms. The net balance for workload expectations is now -1% of respondents, compared to +25% last quarter and +46% at the end of 2021.
Looking at the current workloads, all sub-sectors other than private commercial saw growth in the third quarter, however, the growth that is being reported is slower than it was.
In the case of private housing workloads, a net balance of +15% said that there was a rise in the third quarter, but this was down from +18% in the second and +37% at the end of last year.
The major challenges facing firms at present continue to be material costs and labour shortages, with 60% of respondents reporting shortages of quantity surveyors, 62% reporting shortages of other professionals, and 59% reporting shortages of bricklayers.
With escalating labour and material cost pressures, respondents in Scotland remain relatively downbeat about the outlook for profit margins.
The third quarter was the fifth in succession that there was a negative net balance regarding the 12-month outlook for profitability, with -26% expecting profit margins to decline, down from -2% in the second quarter.
Ian Differ, director at CBA in Glasgow, said: “Material inflation, rising energy costs, and an increase in wage costs are all impacting on project viability.”
Steven Hyde, a quantity surveyor at D Blake & Co in Edinburgh, said: “After a period of relative stability, we are now seeing another round of increases in the cost of materials.”
RICS' chief economist Simon Rubinsohn commented: “The deteriorating macro environment is clearly taking a toll on the construction industry, with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour.
“Indeed, the RICS metric capturing the extent of skill shortages in the sector has barely budged in recent quarters with quantity surveyors and a range of skilled trades in particular short supply.
“Meanwhile, the impact of the shift in the economic outlook is most visible in the residential and commercial sectors where workloads are now viewed as likely to flatline over the coming year.
“Ongoing commitments to a number of big projects is, however, continuing to support activity in the infrastructure area,“ he continued, adding: “The thoughts of the Chancellor on 17 November may provide some clues as to whether this trend is likely to be sustained over the longer term.”
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