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News Release

Scotland

Scotland’s Construction Industry Outperforms UK during First Quarter of 2015


Scotland, 15 May 2015 – Commercial construction in Scotland has outperformed the rest of the UK, including London, during the first three months of the year, according to results from the latest JLL and Glenigan UK Commercial Construction Activity Index.

Total starts in Scotland for the year to end of March totalled £2.1 billion, an increase of 28.1%. The increase in volumes compares with a much smaller increase of 7.3% in London and a decline of -14.2% in the north west of England and -9.2% in the west midlands, within the context of weakening growth in the UK economy, falling from 0.6% in Q4 2014 to 0.3% in the first three months of 2015.

The downside to increased volumes is an increase in construction costs which are expected to rise well ahead of inflation, primarily due to limited contractor capacity, growth in the commercial sector and a sustained rise in the residential market. Specific trades are experiencing significantly higher than inflation costs including mechanical and electrical services, curtain walling and demolition contractors, where labour shortages are pushing up costs. Labour and material strategies are also affecting construction, with the lead-in time for bricks, for example, extending out up to 16 weeks.

Tender price inflation is expected to rise 3.5% over the next six months.

Ken Frew, Director of Building Consultancy at JLL Scotland said:

"The volumes achieved in Scotland during the first quarter of the year are a sure sign of buoyancy within the construction market north of the border. However, there are several factors at play which could place the long term recovery of Scotland's construction industry at risk.

"A key concern is the impact of rising costs on the viability of schemes, particularly regarding riskier projects in the more remote locations around Scotland. One of the main reasons for these increased costs is limited contractor capacity, which we believe will lead to continued influence by top tier contractors on the market, who will become increasingly selective about which projects they tender for, resulting in two stage and negotiated tendering.

"At the heart of Scotland's capacity problems is the lack of alignment between jobs and output. The Scottish Building Federation recently highlighted that there are 58,500 fewer people employed within Scotland's construction sector compared to 2008, despite current output now exceeding 2008 levels.

"Without suitably balanced growth across all sectors, a decoupling of jobs and output could jeopardise the industry's excellent start to the year."