RICS Construction Market Survey (Q4) - Capital Economics
UK Commercial Property

RICS Construction Market Survey (Q4)

UK Commercial Property Data Response
Written by Prohad Khan
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The Q4 data showed a first rise in reported construction workloads since Q4 2019, albeit a modest one. With expectations more upbeat too, this could suggest activity has turned a corner. But tight credit conditions and a weak near-term economic outlook will limit workload in the coming months.

Further signs of optimism about construction activity this year

  • The Q4 data showed a first rise in reported construction workloads since Q4 2019, albeit a modest one. With expectations more upbeat too, this could suggest activity has turned a corner. But tight credit conditions and a weak near-term economic outlook will limit workload in the coming months.
  • The RICS Construction Survey showed a rise in workload in Q4 for the first time since Q4 2019. A net balance of 2% of surveyors reported a rise in workloads in Q4, compared to minus 7% in Q3. (See Table.)
  • The improvement was largely seen in the infrastructure and housing sectors. Infrastructure activity increased from a balance of 3% reporting a rise to 26%. Meanwhile, the commercial construction balance remained firmly negative at minus 22%. (See Chart 1.) This was at odds with the IHS Markit/CIPS commercial construction PMI, which suggested commercial output rose in Q4, although January’s PMI, released this morning, suggested a renewed contraction. (See here.)
  • In line with the forward-looking component of the construction PMI, the survey points to more optimism about the outlook for output this year. The balance of respondents that expect an increase in workload was 34% in Q4, up from 13% that expected a rise in Q3. But, while the pressure on profit margins is expected to ease, they remain depressed at minus 8%, deterring some developers from initiating projects.
  • On balance, we think any recovery in commercial construction activity will be limited in the coming months. After all, respondents cited financial constraints as a challenge and we think credit conditions will remain tight in the coming months. (See here.) What’s more, the weaker near-term economic outlook due to the prolonged lockdown is likely to weigh on developer’s willingness to start new projects.

Chart : Survey Measures of Commercial Construction Activity

Sources: RICS, IHS Markit

RICS Construction Sector Survey – Key Figures (Net Balance %)

Not seasonally adjusted

Q4-18

Q1-19

Q2

Q3

Q4

Q1-20

Q2

Q3

Q4

Past workloads – total

11

9

16

10

12

-3

-36

-7

2

Past workloads – commercial

1

-1

10

2

11

-10

-58

-21

-22

Past workloads – industrial

1

-4

4

3

-1

-10

-43

-4

-2

Past workloads – private sector housing

20

21

22

14

15

-4

-27

2

10

Past workloads – public sector housing

14

6

26

11

16

2

-36

6

12

Past workloads – other public works

8

4

9

10

9

5

-28

-12

11

Past workloads – infrastructure

18

11

20

18

17

11

-17

3

26

Expected employment 12 months ahead

15

17

25

15

32

-14

-20

-3

17

Source: RICS


Prohad Khan, Property Economist, prohad.khan@capitaleconomics.com