Commercial construction ‘buoyant’ as new starts soar

Picture: PA
Picture: PA
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But industry warns that recovery may be hampered by skills shortages and rapidly rising costs

THE commercial construction sector in Scotland out­performed almost every other region in the UK in the first quarter of the year, new figures have revealed.

‘A decoupling of jobs and output could jeopardise the excellent start’

The research into new starts on commercial projects north of the Border show Scotland outstripped everywhere apart from Yorkshire and the Humber between January and March.

Although the figures are seen as a positive sign of the continuing recovery in the sector, industry experts have also warned of rapidly rising costs and skills shortages which could hold back future growth.

Total starts in Scotland for the year to end of March totalled £2.1 billion, an increase of 28.1 per cent on the same period in 2014, according to the JLL and Glenigan UK Commercial Construction Activity Index.

The increase in volumes compares with an increase of just 7.3 per cent in London and a decline of 14.2 per cent in the north-west of England and 9.2 per cent in the West Midlands.

But higher activity is also expected to fuel increases in construction costs which are expected to rise well ahead of inflation, primarily due to limited contractor capacity, growth in the commercial sector and a sustained rise in the residential market.

The report found that specific trades are experiencing significantly higher than inflation costs, including mechanical and electrical services, curtain walling and demolition contractors, where labour shortages are pushing up costs. Labour and material strategies are also affecting construction, with the lead-in time for bricks, for example, extending out up to 16 weeks.

Tender price inflation is expected to rise 3.5 per cent over the next six months.

Ken Frew, director of building & construction at JLL Scotland, said the volumes achieved in Scotland were a “sure sign of buoyancy” within the construction market but cautioned that there were several factors at play which could place the long-term recovery of Scotland’s construction industry at risk.

“A key concern is the impact of rising costs on the viability of schemes, particularly regarding riskier projects in the more remote locations around Scotland.

“One of the main reasons for these increased costs is limited contractor capacity, which we believe will lead to continued influence by top tier contractors on the market, who will become increasingly selective about which projects they ­tender for, resulting in two stage and negotiated tendering,” he said.

“At the heart of Scotland’s capacity problems is the lack of alignment between jobs and output.

“The Scottish Building Federation recently highlighted that there are 58,500 fewer people employed within Scotland’s construction sector compared to 2008, despite current output now exceeding 2008 levels.

“Without suitably balanced growth across all sectors, a decoupling of jobs and output could jeopardise the industry’s excellent start to the year.”

Meanwhile, a separate report has claimed that more than a third of earmarked housing sites in Scotland’s central belt have little chance of being developed.

The research by consultancy Nathaniel Lichfield & Partners (NLP) suggests the allocation of unsuitable housing sites is acting as a drag on development.

Nicola Woodward, NLP director and head of its recently opened Edinburgh office, said that in some cases local authorities may be allocating brownfield sites which have remediation issues, or cleared sites on large housing estates which may not be attractive to the private sector.