Prevailing weak and low levels of business sentiment are set to keep the demand for industrial space at bay, and the outcome of this will be continued moderate growth in market rentals for industrial space, says Rode & Associates.

Thursday, 08 September 2011 02:00

In search of a Silver Lining

Dark clouds remain fixed over the building-construction industry as non-residential building activity is now also contracting

Wednesday, 09 July 2008 02:00

Building Confidence Tumbles

The FNB Building Confidence Index measures the business confidence of all the major role players and suppliers involved in the building industry such as architects, quantity surveyors, contractors, sub-contractors, wholesale and retail merchants, and manufacturers of building materials.

Construction IndustryThe index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between May 5 and June 6, 2008.

 
The index declined from a level of 66 in 1Q 2008 to 50 in 2Q 2008. The latter level compares with an index value of 88 in the corresponding quarter a year ago.
 
The decline in business confidence over the past quarter was due to a moderation in all categories, except in the case of quantity surveyors where confidence increased by 5 index points. The latter development can possibly be related to the fact that second quarter business conditions turned out somewhat better than expected by the respondents at the time of the previous survey. However, an analysis of other survey indicators shows that quantity surveyors are also starting to experience the moderation in overall building activity.

The second quarter growth in building activity in this sector of the building industry has hit a brick wall and was well below expectations. For example, whereas a net 39% of respondents expected a weakening in Q2 2008, the latest survey results revealed that in fact a net 69% experienced a decline in workloads.
 
Possible reasons for the sharply weaker demand for residential building were, amongst others, rising interest rates and building costs, tightening of credit standards by banks, the lagged impact of the introduction of the National Credit Act in 2007, a deterioration in consumer confidence and rising food and fuel price inflation that is eroding the buying power of consumers.
 
The weakening in demand levels resulted in a sharp rise in tendering competition. It was therefore not surprising that a net 68% of respondents to the second quarter survey reported that the profitability of their businesses deteriorated notably.
In view of the sharp deterioration in the tempo of residential building activity, job shedding took place. Indeed, a net 44% of the respondents to the survey reported that the number of people employed was below that of a year ago.
 
As far as business prospects for Q3 2008 were concerned, the view was expressed by respondents that business conditions were likely to remain unfavourable, but no major further deterioration was expected by the respondents to the survey.

Business confidence of non-residential building contractors moderated further from an index value of 78 in Q1 2008 to 70 in the second quarter. In Q4 2007 the index stood at 92.
 
Respondents to the BER survey reported that business conditions turned out well below expectations. For example, whereas a net 9% of respondents expected an deterioration in the growth in building activity at the time of the previous survey, Q2 2008 results indicated that a net 37% of non-residential contractor participants experienced a decline in activity.
 
The moderation in the demand for building work translated into a relatively sharp increase in the intensity of tendering competition. Given the foregoing development, margin compression ensued with the result that the overall profitability of the respondents to the survey deteriorated.
 
Growth in building employment remained fairly stable during the survey quarter, but respondents expect job shedding to occur during Q3 2008.
 
Regarding the prospects for 3Q2008, Loos said that the survey participants do not expect major changes in business conditions.

 

Wednesday, 16 April 2008 02:00

Building Confidence down

FNB's building confidence index, which measures the business confidence of all the major role players and suppliers involved in the building industry, declined to 66 points in 2008's first quarter, compared with 86 points in the last quarter of 2007.

Construction IndustryFNB chief economist Cees Bruggemans said in statement that the deterioration of the index was the result of the business confidence of all subcategories comprising the index declining during the period.

The confidence of building material retailers, manufacturers, wholesalers and contractors declined the most.

The business confidence of residential building contractors dropped from 76 points in the last quarter of 2007 to 60 points in the first quarter of the year, and Bruggemans stated that the growth in building activity in this sector disappointed.

The survey said that some 21% of respondents had expected a weakening in the first quarter of 2008, but that the latest survey revealed that in fact a net 39% experienced a decline in workloads.

"The tightening in demand conditions and increasing tendering competition currently being experienced in the residential sector continues to exert downward pressure on profit margins. It was, therefore, not surprising that a net 46% of respondents to the survey indicated that the growth in profitability of companies was below that of the same quarter a year ago," Bruggemans said.

With the demand for residential buildings waning, the reduction in workloads forced respondents to further reduce the number of people employed. Nevertheless, the availability of skilled labour remained a noteworthy constraint, hampering the building operations of respondents.

Respondents also indicated that they were expecting business conditions in the residential sector of the industry to remain "unfavourable".

Meanwhile, business confidence of nonresidential building contractors "rather unexpectedly" also declined relatively sharply, Bruggemans said.

The index fell to 78 points in the first quarter, compared with 92 points in the fourth quarter of 2007.

Respondents to the survey reported that business conditions turned out well below expectations.

At the time of the previous survey, about 2% of respondents were expecting an improvement in the growth in building activity, but first quarter results revealed that 20% of nonresidential contractor participants experienced a decline in activity.

"In view of the weaker demand conditions experienced, competition in tendering edged up sharply. As a direct result, margins came under pressure and the growth in profitability of nonresidential contractor respondents deteriorated notably. This trend is expected to continue in the coming quarter," Bruggeman said.

Looking ahead, he said that the survey's participants did not expect a reversal in current business conditions and they anticipated the profitability of companies to deteriorate further.

The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between February 4 and March 3.

 

Wednesday, 01 February 2006 02:00

Building costs threaten development

BUILDING costs are rising faster than recent figures suggest, and threaten to slow the pace of further development, First National Bank economist John Loos said yesterday.

Thursday, 20 October 2005 02:00

Construction business confidences rise

Business confidence in the construction industry remains high, with the Bureau For Economic Research's confidence index rising to 94

Tuesday, 16 August 2005 02:00

Rising building costs

Rising costs putting pressure on rentals and prices in new commercial and industrial developments.

THE building market is showing no signs of slowing down.

Monday, 14 February 2005 02:00

Building activities on a roll

THE Stellenbosch-based Bureau for Economic Research (BER) reports in its latest survey on the building industry that tender prices are rising above-inflation percentages and also by more than builders’ input.

Monday, 24 January 2005 02:00

On a collision course

Property developers face a crunch as building costs mount up

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