Construction BUSINESS

The UK construction industry is facing an unprecedented crisis, with a record 4,370 companies in the sector experiencing insolvency in the past year, according to a report by auditing firm Mazars. This marks the highest number of bankruptcies for three consecutive years, revealing a grim outlook for a sector already grappling with a challenging economic environment. The figures for the year ending in November depict a concerning trend, with a 7% increase in insolvencies compared to the previous year and a staggering 76% surge from 2020/21.

The primary factors contributing to the crisis include soaring material and labour costs, which have squeezed profit margins to precarious levels. Increasing borrowing costs and a surge in mortgage rates, reaching a 15-year high, have also dampened consumer confidence, resulting in a decline in residential housing prices after years of dramatic increases. Mark Boughey, a partner at Mazars, describes the situation as an “immensely difficult period” for the construction sector, with an average of a dozen building companies going under every day in the UK.

One of the major challenges faced by the construction industry is the commercial viability assessment of current projects negotiated several years ago under fixed-price contracts. Rising costs and decreased buyer interest have squeezed the sector from both ends. Bankruptcies in the construction sector over the past year were mainly driven by specialized activities such as demolition, electrical, and plumbing, accounting for 58% of all cases.

Mazars anticipates ongoing difficulties in the construction sector throughout 2024/25. The impact of failures in the sector extends beyond individual companies, causing major delays for main developers in completing projects. Industry leaders stress the critical need for resilience and strategic planning to navigate these challenging conditions and emerge stronger on the other side. Mark Allen, CEO of Landsec, the UK’s largest property development company, acknowledges the challenges posed by the current economic cycle and emphasizes the importance of planning ahead for tough periods.

Source: The Irish News