The First National Bank/Bureau for Economic Research (FNB/BER) Building Confidence Index increased by six points to 34 in the third quarter of the year, with improved sentiment across the board barring main contractors and hardware retailers.

The organisations say growth in building activity has gathered momentum, which supports a marked improvement in overall profitability, especially among non-residential builders.

The current level of the index, nonetheless, still means that more than 65% of respondents are dissatisfied with prevailing business conditions.

Compared with the second quarter, building material manufacturers’ and quantify surveyors’ confidence in the sector improved by 13 points each, while the confidence of architects and building subcontractors ticked up by seven points each.

The confidence of main contractors and hardware retailers declined by two points each.

The core Building Confidence Index, which excludes building material manufacturers and hardware retailers, rose to 39 in the third quarter, which, along with the first quarter, was the best level since the second quarter of 2018.

FNB and BER explain that the most notable development in the third quarter was the jump in sentiment of non-residential builders, including main contractors and subcontractors to 52, from 42 in the prior quarter.

“The non-residential property market remains weak, characterised by still high national office vacancy rates and constraints on the manufacturing and retail sectors, which drive demand for industrial and shopping space.

“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-19 and to deal with the energy crisis, semigration of firms to the Western Cape, and low technical base effects are contributing to this resurgence in non-residential building activity,” says FNB senior economist Siphamandla Mkhwanazi.

He adds that residential building activity also improved in the quarter; however, business confidence nonetheless declined to its lowest level this year, while the rating of the lack of new demand as a business constraint remained elevated.

With the exception of some regions, mainly in the Western Cape, the residential property sector is struggling owing to weak demand amid restrictive monetary policy.

As a result, Mkhwanazi states, the appetite for new residential buildings is starting to diminish somewhat.

Activity at the start of the building pipeline has been somewhat weaker in the third quarter, but the confidence of architects and quantify surveyors rising to 30 and 39 index points, respectively, sets up positive sentiment to continue in the next quarter.

Despite increasing for a second consecutive quarter, building material manufacturer confidence remains relatively low at 26, with domestic sales and orders being weak. However, production has improved noticeably, which boosts confidence.

Mkhwanazi attributes the downbeat mood of hardware retailers, with their confidence having declined to a level of 20 in the third quarter, to a continued 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 owing to a number of factors and, as a result, there is household substitution towards essentials, with hardware retailers being disproportionately affected.”