Construction around the globe is picking up, according to professional standards organization RICS’ quarterly Construction Activity Index (CAI), a survey of firms internationally.
The CAI picked up to +25 in Q2 at the global level, compared to a reading of +14 in Q1, marking a significant turnaround relative to the low of -24 in Q2 of last year. As important, the organization said, the gains are spread across the world, with strengthening seen in varying degrees across all world regions.
“At the global level, growth in infrastructure workloads continues to lead the way, closely followed by private residential, although the private commercial sector also posted a small pick-up in activity for the first time since the survey was formed last year,” the report noted.
Survey questionnaires were sent out on June 9 with responses received until July 12. Respondents were asked to compare conditions over the last three months with the previous three months as well as their outlook. A total of 1,960 company responses were received globally, 508 of which were from the U.K.
Globally, the CAI rose from +14 in the first quarter to +25 in the second quarter, compared with a low of -24 in the second quarter of 2020. Europe saw a reading of +34, the Americas posted +29, Asia-Pacific reported +21 and Middle East/Africa (MEA) lagged slightly at +8.
By nation, Portugal, the Netherlands, Saudi Arabia and the United States saw significant gains in activity. But sectors vary.
“It is noteworthy that the private nonresidential/commercial sector within the Americas displays much stronger twelve-month expectations than elsewhere, with this area of the market lagging somewhat in MEA and to a lesser degree in Europe,” the report said. “Alongside this, the private residential sector in Europe returned robust expectations, with a net balance of 60-plus% of contributors anticipating an increase in workloads over the next 12 months.”
The look was positive, also for employment levels. A net balance of +27% of respondents predict staff increasing in the year ahead, up from +18% in the previous report. Headcounts are expected to rise across most of the countries that RICS’ survey covers, with the Philippines, Poland, the Netherlands and New Zealand reporting the highest expectations.
The Americas are seeing growth across the board, with positive sentiment gaining steam. The U.S. leads the region overall in outlook. In particular, infrastructure showed a drastic improvement in sentiment since last quarter from neutral to overwhelmingly positive, while private commercial construction turned around from firmly negative to highly positive. The change in outlook has been drastic.
“The U.S. construction industry does now appear in full recovery mode according to the Q2 RICS Construction Monitor. Although the private residential sector has been leading the way so far this year, the latest feedback suggests the upturn in workloads is beginning to broaden out,” Simon Rubinsohn, RICS chief economist, said. “Looking forward, infrastructure is viewed as likely to be the most buoyant area of activity underpinned by the huge Federal stimulus program. This is likely to be accompanied by a significant jump in headcount as the industry gears up to meet the higher level of demand.”
But all of this will come at a cost.
“That said, shortages of labor in general and of specific skills in particular comes through loud and clear in the survey with both being reflected in expectations for higher wage costs,” the report continued. “This, coupled with the ongoing issues around the sourcing and pricing of building materials, suggests that the hoped-for recovery in profitability, signaled by contributors to the survey, may take a little longer than envisioned to materialize.”
Looking ahead, expectations point to solid growth in construction output throughout the region in aggregate across all sectors covered for the next 12 months. Furthermore, employment prospects within the industry appear to be strengthening, with 44% more survey participants now anticipating an increase in headcounts over the coming year. Likewise, contributors foresee a more positive trend in profit margins coming through.
European respondents reported an increase in workloads across the boards, including private residential construction and infrastructure.
“Crucially, respondents also cited an increase in workloads across the private nonresidential/commercial segment, with a net balance of +19% seeing a rise,” the report said. “This is the first occasion in the five quarters the European survey has been running in which workloads in the non-residential sector have risen across Europe as a whole.”
But as with elsewhere, rising costs remain a concern, with the price of materials cited by 78% of respondents in Europe.
In Asia-Pacific, workloads are picking up, but inconsistently. The Index remains strong in New Zealand, Australia and China, but is slipping in India, losing ground in Singapore and Sri Lanka and falling farther in Malaysia.
In the Middle East and Africa, positive results were a bit more muted, with a CAI of +8 in the second quarter, up from +3 reported the in Q1. Oman and South Africa remain in negative, while Saudi Arabia and Nigeria saw strong gains. Unlike other regions, financing is the top concern, the report said.
However, there are caveats worldwide. Materials costs continue to rise even as skilled labor remains in short supply and could impede activity if they continue to worsen. Rising costs were cited by 83% of all respondents globally as a factor hampering activity, up from 66% in the previous quarter.
Nearly two-thirds of survey contributors cited financial constraints and labor and material shortages as market impediments in the last quarter. Across the Americas in aggregate, tender price forecasts went slightly up in Q2, but costs are now also forecast to rise at a sharper pace than previously predicted. Total construction costs are now seen increasing by 9%, with material costs set to drive the bulk of this rise and labor costs likely to contribute. In fact, overall construction cost forecasts are most elevated in the Americas compared to all other world regions
A strong majority of respondents report the most acute shortfall to be across skilled trades, while around half cited a lack of quantity surveyors and managers.
