Construction activity strengthens despite material cost and shortages

This quarter North America sees the highest Construction Activity Index it has reached since the series began in 2019, reaching +46%. Infrastructure workloads have the strongest growth, broadly consistent with government stimulus measures that have either been introduced or are in the legislative process.

As businesses look to increase headcounts to ensure they have capacity to meet demand, respondents share concerns about skill shortages, with 74% in Canada and 67% in the US highlighting it as a factor holding back activity and noting a shortage for quantity surveyors.

Update: Ann Gray shares her insight on what Biden’s Infrastructure Bill means for the construction industry and what more needs to be done to deliver it.

"Biden's infrastructure bill will add to the already encouraging amount of construction industry enthusiasm as seen in the latest RICS GCM, but there are questions on how it will deliver. While the public funds for infrastructure are crucial to delivering projects for the benefit of the public, it will also be important that public agencies and leaders embrace public-private partnerships, design-build, quantity surveying and international cost management standards to extend the utility of available capital, ensure transparency and build trust in projects." - Ann Gray FRICS, RICS President Elect

Sentiment across the European construction market points to the recovery continuing to gain momentum at a headline level. All sectors continue to see growth, however private residential workloads stand out as the strongest area, with 55% of respondents noting an increase.  The private commercial sector also saw an increase in workloads, evidenced by 35% of contributors noting a rise this quarter compared to +19% in Q2.

Expectations for the next year remain positive across all sectors, with employment levels also expected to grow as 35% foresee an improvement over the year to come, compared to 28% last quarter. The Netherlands, Germany, Poland, and Ireland anticipate the strongest increase in headcounts. However, cost pressures and labour shortages have intensified with a majority of respondents (82%) highlighting material costs impeding market activity and 72% noting labour shortages as a hindrance to activity (rising from 65% in the previous quarter).

Across the MEA region construction activity seems to gain impetus at the headline level, with projections for the next 12 months upbeat for workloads and headcount. This is evidenced by the Construction Activity Index increasing from +8% in Q2 to +18% this quarter, pointing to an acceleration in output growth, now sitting in line with the global average. Saudi Arabia outperforms all other countries in the region with the Construction Activity Index rising from +46% to +56% this quarter, making it one of the most elevated returns not just within the region but also globally.

Workloads across the region for infrastructure display strong momentum as well, growing from +6% to +24% in Q3, with ICT and energy projects noting the highest pick-up in output.  Social, transport and water & waste categories also saw a rise in workloads.

Financial constraints and material costs are impeding activity however and dampen the positive overall sentiment slightly, with 84% and 83% of respondents respectively highlighting these as key issues.

A mixed picture for construction activity comes through from the APAC region this quarter, as headline sentiment slips from +21% last quarter to +3% in Q3.  New Zealand, Australia, Philippines remain strong with improvements seen in India and Hong Kong, however momentum in China has stalled with the headline Index falling to -4% following four successive positive readings beforehand.

Despite the relatively subdued quarter, expectations for workloads over the next year remain more resilient, with infrastructure leading the way and non-residential and residential following behind as they note a rise in level of business.