Five year construction forecast: can it weather the economic downturn?

The spectre of job losses is looming across the general economy as the financial jitters that started in the City begin to spread out across other sectors.

Bankers and brokers are bracing themselves for the dreaded P45 following predictions that more than 20,000 jobs will go in the Square Mile this year.

But construction is expected to stand strong in the current crisis with nearly 90,000 workers needed every year between now and 2012 to replace those leaving the industry and to fill new vacancies.

The global banking crisis has turned the phrase "credit crunch" into a catch-all explanation for any type of financial wobble.

The crunch is causing chaos in the financial sector where any blockage in inter-bank lending leads to fewer deals and a subsequent drop in bonuses and employment levels.

Construction is not immune from the crunch because funding gets harder to find for speculative new developments and buyers face an even bigger struggle to secure mortgages for new homes.

But the government is working hard on ways to free-up the mortgage market and new sources of finance from cash-rich foreign countries are continually arriving to provide funding for financially sound developments.

Construction has been following a steady path during the past decade with continual single-digit growth in output. The rises have not been as spectacular as other sectors, but the flipside is that the fallout from the current economic troubles will be nowhere near as severe.

Far from worrying about job losses, the main problem remains to fill the thousands of vacancies that will appear across the industry during the next five years.

Construction Products Association economics director Noble Francis is confident that the industry will continue to thrive, although he believes the ConstructionSkills employment figures (see below) are at the more optimistic end of the scale.

He says: "The figures are quite bullish but they are looking over a five-year period and even the most pessimistic person wouldn't suggest that the markets are going to be down for that long."

The association's recent forecasts have painted different pictures in the private and public sectors. Private construction, and more recently housebuilding, is running out of steam and is being propped up by government promises on spending levels.

Francis adds: "Obviously a lot of the growth is dependent on the government sticking to its spending pledges.

"Private infrastructure spending is still rising, but, apart from that, things are gloomy in the private sector, which shows how important public spending is. The public sector will be the main driver of growth over the period of these forecasts and a lot depends on them sticking to what they have promised."

Francis believes the government is committed to the cash outlined in the latest Comprehensive Spending Review. But some worrying signs have been emerging from Whitehall.

He says: "Recently, spending on Building Schools for the Future has been lagging. That could be an indication that other spending plans will lag, but hopefully the government will catch up with BSF investment."

Early '90s recession

Industry experts are confident the latest downturn will not decimate construction like the last full-blown recession in the early 1990s when job losses and contractors going under were an almost daily occurrence.

Trevor Rees, head of the construction section of the Recruitment & Employment Confederation, says: "This downturn is different to the last full-blown recession when consultants felt the pain first and hardest. It's much more of a global marketplace now so projects are cropping up in other countries, which you can work on from the UK in this era of the internet and mobile communications. Consultants can run jobs in all parts of the world from their desks in the UK."

Rees believes any fall in the housing market will be more than compensated for in other expanding sectors. "There are many areas that are going strongly - particularly those involved in modern methods of construction. Offsite manufacturing and areas such as glazing and façade work are strong and that is a growth area rather than the traditional biblical trades.

"The drift of eastern European workers back to their home countries is also creating a lot of vacancies (see box, right)."

Contractors are adapting to falling and rising workloads in different sectors and that is expected to be reflected in the mix of new recruits coming into the industry.

One specialist residential contractor explains: "We've had a few jobs die on us, or be put on hold, but it's a question of adapting and moving into other areas where work is still ongoing. We do a lot of residential stuff specialising in flats, which are being hardest hit at the moment, but jobs are still going ahead.

"You have to look at this sort of thing in cycles and a job we start now won't be finished for nearly two years and the whole economic picture might be different by then. Everyone knows there is a shortage of housing - the demand is there, the problem is affordability and finance.

"Developers are coming up with schemes like shared ownership to address that problem because it does no-one any good to have empty units standing around.

"We are still expanding as a company and recruiting people because the work is still coming through. If residential wobbles a bit then we are looking at other areas such as hotel construction, which is booming. All our skills are transferable between the two, so you just have to adapt when things get a little tighter."

Demand for professionals

Hays Building Services managing director Tim Cook believes construction professionals will continue to be in huge demand despite the market volatility.

He says: "It's impossible to call the market a long way into the future from a recruitment point of view. But at the moment our medium-term orderbook is strong.

"That is dependent on infrastructure work and public sector spending, because the residential and speculative commercial market is going to have a horrible time.

"The market is changing by the week but there has been a global shortage of white-collar talent and that is set to continue for the foreseeable future.

"If you are a skilled operator in the construction professions there is still a lot of demand - those people are like gold dust whatever the fluctuations in the market."