A confident outlook tempered by funding and skills concerns finds latest Construction Market Intelligence from RLB

There is a confident outlook in the Yorkshire & Humber construction sector tempered by funding and skills concerns according to the latest Construction Market Intelligence from Yorkshire based construction and property management consultant, Rider Levett Bucknall (RLB UK).

Major developments including Sheffield Policy Campus and West Yorkshire Mass Transit are driving demand across a range of sectors and underpinning confidence in the region’s medium to long-term outlook.

Placemaking is now more prevalent in development opportunities in the region with the new emphasis on living and working within city centres. The demand for flexible, high-quality commercial spaces is still strong as hybrid working remains the norm.

The region’s confidence is being tempered by budget constraints across the public sector and the lack of clarity over the new government’s spending priorities. Labour shortages have continued to add pressure to wage inflation and construction costs, affecting project viability.

Contractors are cautious and their reluctance to take on uncertain commercial risk is a key feature of contract negotiations. This is both slowing progress and further inflating construction costs across the supply chain as contractors strive to maintain a reduced risk profile.

Public investment and economy will determine long-term outlook 

There has been minimal change in overall pricing levels since the last quarter with the general election dampening new opportunities, and material inflation having settled and reduced in areas. The key challenge remains the labour shortage and the impact this continues to have on labour price inflation.

There is cautious optimism among contractors over their future pipeline of work, but the long-term outlook on tender prices is hard to call until there is clarity on the spending priorities of the new government and given the backdrop of economic uncertainty.

• Steel prices continue to fall while other commodities remain relatively stable, which is reflected in the mixed picture we are seeing.in material prices.
• Material prices have fallen slightly overall with the biggest drops in plywood and reinforcement bar. Metal doors and windows have continued to increase in price.
• Due to the skills shortage in construction, labour prices continue to increase generally adding further pressure to the viability of projects. Facade contractors are in particular high demand.

SECTOR FOCUS

Commercial

The continued shift to high-quality office space is prevalent in Leeds and Sheffield, with many public and private sector clients reviewing their office environments to support hybrid working and their route to net zero.

Education

Significant challenges in the higher education sector are slowing investment in new schemes. These challenges include reductions in international student applications, wage inflation and the cap on tuition fees, coupled with the need to rationalise and modernise estates and support decarbonisation efforts.

Infrastructure

West Yorkshire Combined Authority has launched the public consultation on the proposed routes of the £2.5bn new tram network connecting Leeds and Bradford. Other major infrastructure projects that are underway include the Dogger Bank Wind Farm, the York Central regeneration project, one of the largest of its kind in the UK, and the Monk Fryston battery energy storage system near Selby.

Residential

Residential continues to be a buoyant sector in the region with multiple developments underway or in the planning process. Leeds retains its position as one of the best cities in the UK for investing in residential developments due to the return on investment and demand for housing in the city. The picture is similar in Sheffield with Homes England providing £67m of funding to develop two neighbourhoods at new Furnace Hill and Neepsend, creating 1,300 homes in the city centre.

Chris Shaw, Senior Associate for RLB Yorkshire comments “Leeds and Sheffield are strong economies with the residential sector remaining key to their continued growth, which can be seen in the number of ongoing and new projects coming to the market. This is especially evident in Leeds which is currently ranked in first place in the country for new housing planning applications and transactions.

“Short-term, there is prospect of some caution and headwinds while the new government sets out its priorities and spending commitments for the future. However, we are hopeful that they can develop a long-term strategy for the country that filters through into a more stable plan for the construction sector.”

Click here to read RLB’s full Construction Market Intelligence Q3 2024.