Good news for construction industry SMEs?
The graph clearly shows industry growth slowing in 2015 to 2016 in comparison to 2013 – 14 and 2014 -15.
Construction industry challenges and opportunities for 2017
According to Federation of Master Builders, chief executive Brian Berry, rising material costs and a shortage of skills are significant challenges that the construction sector faces in 2017, which have the potential to dampen further growth. However, in the SME sector of the industry, he suggested that government policy intervention could go some way to balancing this out; “The pledge from the government that it will focus on finding ways to boost smaller scale house builders is timely as it’s an area that is ripe for growth and could help counteract the risk of stagnation within the SME part of the construction industry.”
However, the outlook for commercial property is less optimistic. According to Paul Trigg, construction specialist and assistant head of risk underwriting at trade credit insurer Euler Hermes, “We expect the fall in GDP growth to hit commercial property hardest. Plummeting levels of foreign direct investment are expected to curb office development, which will hurt contractors as competition ramps up and squeezes low industry margins even further. Pressure on cashflow will inevitably impact companies’ ability to pay on time across the supply chain and construction businesses will need to be extra careful when managing their credit books.”
Construction industry insolvency data
Interestingly, if we examine figures provided by the insolvency service for the construction industry, we can see that overall, construction which has traditionally held a reputation for being something of the ‘bad boy’ of insolvency has been slowly digging its way out of that hole. All construction insolvencies have in fact been in a healthy rate of decline since 2011.
While we don’t yet have all the figures for 2016, the trend is on course to continue. As a percentage of insolvency across all industries, construction has actually contracted from 20.12% in 2010 to 16.84% in 2015.
Construction industry output and insolvency data: how it stacks up
It is certainly a cautionary time, but there is reason for optimism. If we look at the ONS data output of how work in the industry is distributed, we can clearly see that new work follows the same trend as the year on year trends and accounts for the bulk of the work, rather than repairs and maintenance.
In terms of new work, if we break this down further, we can see that the growth is primarily driven by private commercial projects and new housing, particularly new private housing.
What does the construction industry skyline look like for 2017?
Considered in the light of the government’s recent white paper on construction, the outlook looks cautiously optimistic for SMEs in the industry. The government seems keen to aid the SME sector and find ways to make working with the current planning system easier. Both the proposal to ‘promote a good mix of sites and increase the supply of land available to small and medium-sized housebuilders’ and the ‘presumption in favour of small sites’ should help to reduce the risks and difficulties accessing land that smaller-scale developers face when applying for planning permission. Similarly, proposals to tackle the under-resourcing of council planning departments are good news for those forced to navigate the dark tunnels of council bureaucracy. Whilst there seems to be little on offer concerning grants or procurement initiatives, and EU uncertainty holds a dark cloud over the industry’s skills shortage, there is certainly good news for those smaller-scale developers looking to push forward in 2017.