Turner & Townsend calls for action to combat construction sector "capacity crunch"

The report predicts that real estate inflation is expected to fall to 3.5 percent in 2023, down from 9.5 percent in 2022, and predicts that infrastructure will fall from 10.0 percent to 5.5 percent.

Michael Grace, director, Yorkshire, Turner & Townsend said: “The construction sector across Yorkshire showed its resilience during the pandemic, helping to power our local economy back up to strength.

“Then as energy and material costs soared, and the fiscal climate tightened, we’ve shown we can do more with less – growing productivity far faster than the economy at large.”

The report states that disinflationary effect over 2023 is being driven by a series of factors – with reduced demand on one hand and productivity improvements on the other.

Construction output is estimated to have contracted by 1.7 percent month-on-month in January 2023, with this trend likely to continue through the year.

Meanwhile construction productivity is shown to have performed strongly, with an 8.6 percent rise in productivity over the last 12 months, and an 11.0 percent increase since COVID-19, at the same time that wider economic productivity growth has been lacklustre.

The report warns, however, that the ongoing labour shortage and high level of industry insolvencies are putting a “major blocker” on the growth of the construction sector, and should not be allowed to undermine productivity progress.

The total number of people working in construction has fallen by 10.5 percent since the first quarter of 2019.

The UKIM report also claims that market capacity is being “hollowed out” by a surging number of insolvencies, with 1,112 construction firms going out of business in the fourth quarter of 2022 alone.

The new report also acknowledges the impact of the recent Budget, which loosens rules on bringing foreign construction workers into the market and credits the sector for boosting traditionally stagnant productivity.

However, Turner & Townsend has asked both the government and the construction sector to redouble efforts to tackle the recruitment crisis and invest in training.

Speaking about issues surrounding recruitment, Mr Grace added: “The number of 16 to 24-year-olds enrolling in construction training schemes is now barely a quarter of its 2007 level, and too many still see the sector as low-tech, manual labour, with limited opportunities for progression.

"This is far from the truth, and it is our joint responsibility across the region – government and industry – to showcase the modern reality of high-tech, high-skilled construction that is powering our economy forward.”