New data has suggested to property specialist Simon Morris that UK property development drove national construction activity up during the second quarter of 2015.
UK property shortage
As the UK has transitioned into economic recovery, the country’s residential and commercial property sectors have recorded impressive expansion. The Office for National Statistics’ June 2015 House Price Index indicates that the average UK house price rose 5.7% in the year to June 2015. Meanwhile, The IPD UK quarterly property index showed that UK commercial property recorded returns of 3.5% in the second quarter of 2015. The office sector preformed particularly well, recording returns of 4.9% for the quarter.
This indicates that there is a high demand for residential and office space, but evidence indicates we don’t have the supply to meet demand. According to the BBC only 141,000 homes were built in the UK in 2014, falling short of the 250,000 homes we need to build per year to fulfil demand. Furthermore, UK office space is in short supply, particularly in London.
Construction activity rises
Property Wire reported that the latest market survey from the Royal Institution of Chartered Surveyors (RICS) suggests that UK property developers are rushing to fill these gaps. The report indicated that 44% more surveyors reported higher activity levels in the second quarter of 2015 than the previous quarter, due to rising office development and home building activity. In contrast, only 37% of surveyors reported higher activity levels in the first quarter of 2015, from the quarter before.
The report indicated that construction activity was stronger in London and the South East than anywhere else in the UK. It found that 58% of surveyors in these regions expect higher profit margins as a result of their current workload, whilst 62% expect to take on more staff throughout the rest of 2015. This highlights a pressing problem for the construction industry; it faces a growing skills gap.
The skills gap.
The chief executive of the Federation of Master Builders, Brian Berry, explained: “There can be no doubt that the building industry is booming but the skills shortage continues to loom large over our industry. Almost half of construction SMEs are struggling to recruit adequate numbers of bricklayers, with others finding it increasingly hard to hire carpenters and joiners, site managers and supervisors.”
He went on to say: “Looking ahead, our members are reporting that their workloads are likely to rise over the coming three months which means the shortage of skilled workers will only become more acute. It also begs the question, how much stronger would the pace of growth in the UK construction industry be if we had an ample supply of skilled tradespeople.”
Investing in property development
The fact that UK construction activity rose in Q2 2015 suggests that now may be a good time to use pension funds to invest in buy-to-let. However, Simon Morris would advise potential investors to be cautious. Not only could the construction skills shortage hamper the sector, but there are many risks attached to this strategy. Investors should download Simon’s latest guide to determine the risks of releasing pension equity to invest in property.