RIBA Insight Monthly Briefing

The construction industry in a time of uncertainty

Here's a brief overview of the current state of our economy, what Brexit means for the construction industry, and how the architectural profession is rising to the challenges ahead (based on research findings).

On the face of it, current economic indicators are not great. The depreciation of Stirling is pushing up inflation. The spending-fuelled growth we saw post Brexit in 2016 looks to be ending. Real incomes are likely to deteriorate as wage increases fail to keep pace with inflation, so dampening consumer spending and the economy. UK GDP growth has slowed markedly to just 0.2% last quarter. The construction sector is now contracting; construction output has fallen 0.6% when comparing April 2017 with April 2016.

Then there is Brexit. Since the result of the Brexit referendum, the UK economy has been in a state of uncertainty, uncertainty compounded by an unexpected election and minority government.

What does Brexit mean for the construction sector? Four important issues are:

Uncertainty over the outcome of Brexit negotiations

Nearly a year on from the EU Referendum, there is still little clarity on how the UK will leave the EU. Uncertainty makes business plans more difficult to create and implement. Some kind of transition arrangement looks increasingly likely.

Investment

Uncertainty makes capital investment less likely, because the return on investment is less clear. We can expect capital expenditure to be less than would otherwise have been the case. In part, this issue has been mitigated by an increased investment in infrastructure and a weaker pound, which makes foreign capital investment more attractive.

Material costs

Construction product costs are likely to increase. Because of the fall in the pound, construction product imports will be more expensive, so too will be imported component parts for UK produced products. Energy costs are set to rise, increasing production costs. More expensive construction products mean more expensive buildings. This will weigh on investment.

Labour

Seven hundred thousand new construction workers are needed in the next five years to replace those retiring. 12% of construction workers are from overseas. A quarter of the construction workforce in London is from the EU. Architectural practices rely on architects from overseas, particularly the EU. Without transitional arrangements for design professionals and tradespeople, twinned with increased training and professional development, the UK construction industry will have a significant capacity gap.

So where does this leave the architectural and building design professions? In a recent piece of qualitative research carried out by NBS, on behalf of the RIBA, we found a design community ready for the challenge. The research found an architecture profession that is strong, sustainable and flexible. Architecture is a creative industry and that creativity is applied, not only to building design, but to business survival and development.

Indeed, given the many changes the architectural community has seen (whether in the economy, policy and legislation, or in technology), Brexit is just the latest in a line of challenges it has proven itself able to meet.

How do practices meet these challenges? The research uncovered four common characteristics of resilient architectural practices. These are:

  • Business-focussed
  • Innovative
  • Adaptable
  • Diverse and inclusive.

While broadly optimistic, practices are also looking for a Brexit deal that will help them; one that will allow their businesses to continue to access diverse skills, and to continue to invest in innovation.

The full report is available to download. Reading it gives an indication as to why the architectural community remains positive. Indeed, the latest RIBA Future Trends survey shows that, on balance, the architectural community expect workloads to increase in the coming months, not contract.

We may be in for difficult times, but the architectural community has proven itself resilient and adaptable before, and will do so again.

More information

Author Adrian Malleson is Head of Research, Analysis and Forecasting at RIBA Enterprises.

 

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