Stronger planning and project controls are needed as the construction sector faces a capacity crunch, according to Turner & Townsend’s UKMI report
Cooling demand, high insolvencies, and loss of market confidence have created pressures on the construction industry.
Turner and Townsend’s UKMI report points to slowing new orders, low new work construction output, and persistently high labour and material costs.
In response to this, Turner & Townsend has slightly increased its tender price inflation forecasts for real estate, up to 3.7% and 2.7% in 2024.
Predictions for infrastructure tender price inflation in 2023 are unchanged from the Spring forecasts (5.5%).
However, lower private investment and resequencing of major projects in the mini-budget could mean a cooling effect long term.
Insolvencies, housing, and skills shortage caused disruption
Construction insolvencies rose by 9.7% in the year to Q1 2023, with falling construction output combined with increased input costs to tighten contractor margins.
The downward trend in output is expected to continue through 2023, with a predicted 6.4% fall due to declining new housing starts. The price of materials has increased by 4.7% – 42.7% above pre-pandemic levels.
A lack of skilled workers and an insufficient labour pool has also led to delays and increased costs. Total construction employment in Q1 2023 contracted by 1.9% on the previous quarter, with vacancies still at a historically high rate.
Procurement and digital strategies will mitigate risks
Martin Sudweeks, Turner & Townsend, said: “Construction is continuing to feel the aftershocks of the pandemic and global inflationary pressures, but the current outlook goes beyond that – and government and industry need to face up to the structural problems our sector is facing.
“Skills gaps must be identified early, and the availability of key personnel locked in. Contractors’ financial status must be rigorously evaluated, along with better management of data and real-time reporting to continually assess the progress and performance of projects.”
