‘Capacity crunch’ could hinder sector’s ability to respond to investment drive

Paul Connolly

TURNER & Townsend has warned that a contractor ‘capacity crunch’ could adversely impact the construction industry’s ability to respond to a post-Brexit investment drive.

The firm said that after several years of ‘stalling growth’, a return to private sector spending and the proposed £100 billion infrastructure investment due to be announced by the UK Government in the spring Budget, could lead to an increase in demand.

However, with contractors operating at an average capacity of 86% in Q3 2019, Turner & Townsend said the lack of spare capacity leaves questions about the industry’s ability to cope with an assumed increase in demand.

The ‘changing landscape’ is in stark contrast to the ‘lukewarm’ conditions reported by more than 60% of contractors surveyed in Q3 2019, according to the most recent UK Market Intelligence Report from the global professional services business. Contractor confidence fell to its lowest level on record.

The report highlights ‘thinning’ contractor numbers as the key driver behind the ‘looming capacity crisis’. This follows a number of insolvencies as well as an exodus of foreign workers since the EU referendum.

Paul Connolly, UK MD of cost management at Turner & Townsend said, “Post-Brexit, the government and private sector investors look ready to loosen the purse strings. An anticipated increase in demand for construction projects and programmes should be a welcome relief rather than a headache for the industry given the recent years of slow growth. Instead, it faces a ‘capacity crunch’ that will impact its ability to deliver on a raft of new programmes and, perhaps more importantly, derail the long-term transformation of the industry.

“Boosting productivity and attracting new talent to the industry are imperative if the industry is to rise to the challenge and meet anticipated demand. Recent commitments to offsite manufacturing and the coming T-Level vocation qualifications are important steps down this road, but there’s no simple fix. To tackle the underlying issues and create the capacity we need, close collaboration with the supply chain is vital.”

Andy Outram, director and real estate leader for Scotland at Turner & Townsend added, “Within the Scottish market, there is a lot of activity around property investment predicted for the early part of this year in particular. Glasgow and Edinburgh in particular remain attractive as locations for business to operate from, where there is skilled resource with good transport links. What is questionable is whether development opportunities will follow from this investment. Major development activity has slowed in all the major Scottish cities over the last few years and if there is a rush of activity, the capacity for contractors to undertake works will certainly be challenged.”