Growth in building activity gathered further momentum during the third quarter of 2023 supporting a marked improvement in overall profitability, especially among non-residential builders.
This was reflected in the Building Confidence Index (BCI) by FNB and the Bureau for Economic Research, which increased by six points to 34 for the quarter.
The improvement in sentiment was broad-based with the exception of main contractors and hardware retailers, the latest survey found.
However, the current level of the index, albeit improved, means that more than 65% of respondents remain dissatisfied with prevailing business conditions.
The index can vary between zero, indicating an extreme lack of confidence, and 100, indicating extreme confidence.
Compared to the second quarter (Q2) the following changes in confidence were recorded:
- building material manufacturers (+13), quantity surveyors (+13), architects (+7),
- building sub-contractors (+7), main contractors (-2) and hardware retailers (-2).
Similarly, the core BCI, excluding building material manufacturers and hardware retailers, rose to 39 during the third quarter, the best level since the second quarter of 2018.
The most notable development was the jump in sentiment of non-residential builders to 52, from 42 recorded during Q2 of 2023.
Continued activity growth and a marked improvement in profitability boosted confidence levels.
“The non-residential property market remains weak, characterised by among other things, still high national office vacancy rates and constraints on the manufacturing and retail sectors, which drive demand for industrial and shopping space,” said Siphamandla Mkhwanazi, a senior economist at FNB.
“Despite this, new building activity is robust and order books are looking more promising,”
“Several factors, including possible ongoing retrofitting of office space post-Covid and, to deal with the energy crisis, ‘semigration’ of firms to the Western Cape, and low technical base effects, are contributing to the resurgence in non-residential building activity,” Mkhwanazi said,
Residential building activity also improved. However, business confidence declined to its lowest level this year while the rating of the lack of new demand as a business constraint (a proxy for order books) remained elevated.
“With the exception of some regions, mainly in the Western Cape, the residential property sector is struggling due to weak demand amid restrictive monetary policy. As a result, while there is work currently, the appetite for new residential buildings is starting to diminish somewhat,” Mkhwanazi said.
Activity at the start of the building pipeline was somewhat weaker this quarter. However, the confidence of architects and quantity surveyors rose to 30 and 39 index points respectively. In the case of quantity surveyors, sentiment may have been lifted by expectations for improved activity during the next quarter.
Despite increasing for a second consecutive quarter, building material manufacturer confidence remained relatively low at 26 and domestic sales and orders were weak.
The confidence of hardware retailers declined to 20 for the quarter due to the deterioration in sales.
“The results from the hardware retailers are consistent with what listed companies are sharing regarding the state of the sector. Consumers are under significant strain due to a number of factors. As a result, there is household substitution towards essentials, with hardware retailers disproportionately affected,” said Mkhwanazi.
“Overall, the building sector recovery remained on track in Q3 of 2023. At this stage, the fortunes of non-residential builders seem to be improving more noticeably than that of residential builders.”
