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Construction balance sheets leaving real estate in the shade

Julie Palmer

In the recent Begbies Traynor Q3 Red Flag Alert report, it was heartening to see the construction sector show signs of regaining a degree of stability. 

Our quarterly report, which monitors the financial health of UK companies, found that the number of construction firms rated as being in ‘significant distress’ fell 2 per cent during the third quarter. This equates to nearly 1,000 construction firms now feeling more optimistic about their financial prospects.

Set against the general uncertainty generated by the Brexit negotiations – which are undoubtedly having an impact on forward planning, investment decisions and purchasing strategies – it is a welcome response from a strategically important sector for the UK economy. 

It also echoes what we are seeing across the sector more generally.

Sector giants such as Balfour Beatty, Galliford Try, Kier and Wates continue to secure large-scale projects, and their ability to do so is a healthy sign for both the rest of the sector and associated supply chains.

With industry activity remaining stable and the numbers of firms facing financial distress falling, we could well be entering a period of tentative stabilisation and, dare we say it, growth for a sector that has had to overcome significant commercial challenges in the past decade.

Different directions

In contrast, there are several markets where stabilisation is in short supply.

“While 2018 has seen the sector respond well to Carillion failing at the start of the year, 2019 will pose its own set of challenges”

The number of real estate and property companies rated as being in ‘significant distress’ is on the rise – the figure jumped 16 per cent in Q3 compared with the same period of 2017.

The latest Red Flag Alert found that more than 43,500 companies in this sector now fall into this category, some of which will have been managing property vacated amid the high-profile turmoil on the high street. This year-on-year increase in distressed firms is at odds with the figures for the construction sector.

It is possible that the rebound of construction, coupled with government policies supporting greater housebuilding, will have a positive influence.

That said, the data also shows the continued uncertainty around Brexit is having an effect. The most recent Market / CIPS data revealed that overall confidence in the year ahead is low, with many construction firms adopting a ‘wait-and-see’ approach before committing to major spending. 

So, while 2018 has seen the sector respond well to Carillion failing at the start of the year, 2019 will pose its own set of challenges. Above all, certainty is needed for the sector to flourish.

Julie Palmer is a partner at Begbies Traynor

Readers' comments (1)

  • What a joke - major contractors unable to deliver on time, on budget or to make a profit, taking on work just to maintain and grow turnover, diversification beyond their core skills, reporting losses as exceptional costs, reporting acquisitions as exceptional but disposal as profit, unserviceable debt piles, poor leadership and overcomplicated middle management structures. Begbies clearly have no idea what they are talking about, our top ten major contractors are basket cases no better than Carillion!

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