Which region’s construction market is trailing behind?

The quarterly report’s construction activity index (CAI) puts Europe’s overall activity in decline for the fourth quarter running, with a CAI of -1. On a country level, Ireland is a European bright spot with a CAI of +24, but Germany, Italy and the Netherlands are all in negative territory.

Here are four key points from the RICS Global Construction Monitor for Q2 2023.

One of the reasons given for the lack of growth in Europe’s construction activity is that “workloads are falling significantly across the private residential sector, while private commercial output trends are also stagnant at best across many parts of the continent,” says Tarrant Parsons, senior economist at RICS.

In stark contrast is Saudi Arabia, which had the strongest individual CAI of +63, boosted by ongoing ‘giga projects’ such as smart city The Line and luxury tourism destination Amaala. Neighbouring countries Oman and Qatar also had very positive figures on the CAI.

Regarding the lack of activity in Europe, one RICS member based in Rotterdam had this to say: “[There is] stagnation in the housing market due to higher interest rates, new tax rules, lower yields and high construction costs.” Another member in Berlin commented: “Long processes on the part of the authorities. Approval process takes way too long.”

While the most cited factor limiting construction activity was the cost of materials, the inflation of those costs is slowing.

“Although projections for material cost inflation in the year ahead remain high by historical standards, they have been further trimmed within all world regions compared to earlier in the year,” says Parsons. “Across the globe in aggregate, construction costs are now seen rising by a little over 5% during the next 12 months, representing the least elevated forecast put forward by survey participants since Q4 2020.” 

Among the member comments in the report, the cost of materials came up time and time again. In New Zealand, one RICS member said the “market is dominated by a monopoly for supply of materials” and in Ghana another member highlighted the “cost of materials as a result of currency instability”.

Continuing a theme highlighted in the Modus analysis of the Q4 2022 report, infrastructure projects are responsible for the largest percentage of the industry’s workload around the world. In all regions, infrastructure is a much larger proportion of the expected workload than private residential or non-residential projects. In Europe, it is the only sector of the three that is expected to grow in the next 12 months.

“Within this, energy stands out as the leading infrastructure sub-sector globally, while transport, ICT (information and communication technology), along with water and waste are all seeing a solid increase in workloads on the same basis,” says Parsons. “What’s more, respondents remain confident in the growth potential for infrastructure projects over the coming year.”

Some examples of large-scale, multi-billion pound infrastructure projects currently underway across the world include: Mumbai International Airport in India, California High Speed Rail in the US and the Thames Tideway Tunnel in the UK.

In both the US and Canada, 81% of respondents said there was a skills shortage in the construction industry. In the US, the same number reported a labour shortage, while in Canada a slightly lower 76% said there wasn’t enough labour available.

“In the case of skills shortages, these seem to be concentrated across skilled trades, project managers and quantity surveyors,” says Parsons. “From a regional angle, this problem appears to be most pronounced across the Americas and Europe.”

According to a report by New York-based accountancy firm Marcum, the US construction industry currently has around 400,000 fewer employees than it would do if the COVID-19 pandemic hadn’t occurred. This is based on it having lost around 1.1m jobs in the first two months of the pandemic and the normal rate of hiring between 2015 and 2020.

One RICS member in San Francisco said: “Labour shortages and long lead-times for certain materials are having the biggest effect,” while another in Seattle cited a “skilled labour shortage, especially electricians and plumbers.”

Earlier this year, Modus proposed a potential solution by highlighting the skills ex-military personnel can bring to surveying, speaking to six people who have made that career transition.