Building from the ground up: Has the construction industry turned a corner?

Construction is an industry that is constantly being challenged, but could be turning a corner. With interest rates continuing to fall and the possibility of falling further, and greater efficiencies being realised within the supply chain, construction looks poised for something of a revival. It may not be dramatic, but with the industry stabilising, the outlook looks promising.

According to Company Insolvency Statistics in July 2024, there were 2,191 company insolvencies in England and Wales (Photo: AdobeStock)

One swallow, however, doesn’t make a summer, and where there are winners there has to be losers. To that end, the spectre of insolvency is never far away, especially given the long tail of the pandemic. It’s not yet clear either the level of appetite for public spending and private investment, and labour shortages could yet threaten to derail a fragile recovery.

The numbers make interesting reading. According to Company Insolvency Statistics in July 2024, there were 2,191 company insolvencies in England and Wales, 7% lower than June 2024 but 16% higher than July in the year prior. This number is still a great deal higher than during the COVID-19 pandemic and the 2014-2019 period. Many of these insolvencies can be attributed to an unstable and unpredictable political and economic environment which is the result of a busy election year in many parts of the world (with more to come), compounded by the high cost of doing business.

Adapting to change

Cost volatility has been an ongoing challenge for the industry, especially the cost of materials – steel, wood etc. Global shortages have led to local problems, and been a factor in many business failures. It has also led to a thinning in the number of distributors and suppliers, which in turn impacts delivery schedules and obliges firms to look elsewhere for supplies, often overseas, with the additional costs that this brings. The drive towards sustainability is also a challenge, and a cost to bear. While new materials promise long-term savings and sustainable benefits, they could drive costs higher in the short term.

Without doubt the biggest challenge, however, is one of talent – and specifically the shortage of skilled labour. Carpenters, bricklayers, and plasterers are in particularly short supply and this not only drives up costs but can also lead to delays in project timelines. The sector needs an additional 251,500 workers by 2028 to meet expected demand2. Looking overseas is again an option but the industry also needs to focus on training local talent, and keeping them to ensure a sustainable workforce for the future.

A positive 2025

While the fortunes of the construction industry may decline slightly as we come to the end of the year, some industry experts predict better news for 2025.

Emma Reilly FCICM from Top Service, an expert in construction industry debt recovery, believes the upcoming year will see spending moving from repair and maintenance (R&M) activities to new builds. This too follows the priority of the recently elected Government.

The residential sector, especially new build residential output, continues to be the most significantly impacted segment within the UK construction industry (Photo: AdobeStock)

“Historically, R&M spending has shown resilience during economic downturns, maintaining steadier demand. However, the current economic climate, characterised by higher borrowing costs, is reshaping spending patterns,” she says. “This shift indicates a reorientation in the industry’s focus, prioritising new construction projects over repair and maintenance work. It’s a change that reflects both a response to consumer demand and a strategic adaptation to the evolving economic landscape.”

The residential sector, especially new build residential output, continues to be the most significantly impacted segment within the UK construction industry. The sector has experienced a sharp decline, primarily due to the compounded effects of high interest rates, which have resulted in increased mortgage costs which make home buying less attainable.

In general terms, the constructions industry may be seen as being at something of a crossroads. While the future looks bright, in the here and now, insolvencies are on the rise, and as such, strugging businesses are urged to seek help early.

This trend is particularly pronounced among mid-sized contractors and developers, who are having to contend with inflation and a reduction in new project starts. Additionally, securing performance bonds and credit limits has become more difficult as financial institutions adopt a more cautious approach due to market instability. This rise in insolvencies highlights a broader concern regarding liquidity and financial health in the industry, prompting firms to adopt more a cautious and strategic approach to financial management and project planning.

STAY CONNECTED

Receive the information you need when you need it through our world-leading magazines, newsletters and daily briefings.

Sign up

CONNECT WITH THE TEAM
Andy Brown Editor, Editorial, UK - Wadhurst Tel: +44 (0) 1892 786224 E-mail: [email protected]
Neil Gerrard Senior Editor, Editorial, UK - Wadhurst Tel: +44 (0) 7355 092 771 E-mail: [email protected]
Catrin Jones Deputy Editor, Editorial, UK – Wadhurst Tel: +44 (0) 791 2298 133 E-mail: [email protected]
Eleanor Shefford Brand Manager Tel: +44 (0) 1892 786 236 E-mail: [email protected]
CONNECT WITH SOCIAL MEDIA