In December 2015 KPMG was forecasting a “positive outlook” for the construction Industry for 2016, when Richard Threlfall, KPMG Head of Infrastructure, predicted steady growth and gradually improving margins.
He said: “2015 has been a particularly ghastly year for many Tier 1 firms, who have been knocked off-course by losses on legacy contracts signed too cheaply in order to maintain volume in the depth of recession……….
“Weak profitability in the industry won’t improve overnight, but we can expect to see steady growth in order books and gradually improving margins. For the supply chain, the outlook is really good.”
A year on, the statistics suggest that the industry, both Tier 1 and smaller construction SMEs, have experienced mixed fortunes.
Some key construction industry statistics and pressures
According to the Office for National Statistics (ONS) most recent findings published for October 2016 construction output had decreased by an estimated 0.6% compared with September 2016. All new work decreased by 0.9%, with the largest downward contribution coming from infrastructure. This was despite an upward revision in the figures for the third quarter (Q3, July to September). Even repair and maintenance, traditionally the preserve of construction SMEs, had experienced no growth.
Nevertheless, it said, new orders remained at their highest level since 2009, immediately after the 2008 economic crash.
Similarly, according to a Guardian report in November, construction work for office space in central London had reached its highest level for eight years, up by more than 4% compared with the period before June’s EU Referendum.
Chris Lewis, head of occupier advisory at Deloitte Real Estate, said the figures showed the capital was resilient.
That may be true for commercial property in London, despite the post-Brexit uncertainty, but what about housing construction, especially outside the capital?
Despite the evidence of considerable demand, particularly for affordable and social housing, here too, ONS figures showed that output had dropped by an estimated 1.4% in Q3, despite a slight upward revision in the figures.
Housebuilder Redrow noted, however, that housing was still up 8.7% when compared with the same period in 2015 as private new housing increased by 10.8% but public new housing – a much smaller part of the sector – fell 3.1%.
Undoubtedly there are pressures on the construction industry not least the post-Brexit uncertainty and ongoing skills shortages. The massive devaluation of £Sterling is also an issue, given that much building material has to be imported, particularly bricks, which are no longer produced in the UK and will therefore be more expensive.
The stagnation in the repairs and maintenance side can hardly be good news for smaller, local SMEs. It remains to be seen whether the announcements in the Chancellor’s Autumn Statement of increased spending of £1.1bn extra investment in English local transport networks, £220m to reduce traffic pinch points and of the promised £1.4bn for 40,000 extra affordable homes will be enough to ease the pressure on SME builders.