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Private prospects under pressure

FINANCE City Site

THE ELECTION result has highlighted the need for contractors to maintain large PFI and public sector workloads, particularly in social housing.

Crest Nicholson's rebuttal of Heron's approach last week underlined the high hopes the house builder holds for its urban regeneration business.Faced with pressure on prices and volumes from conventional private sales, social housing will provide an increasingly important pillar for house builders who can master inner-city development and work successfully with housing associations on equity share and other flexible schemes.The margins may not match private sales but firms don't need to tie up capital in land banks for long periods and, for companies with specialisms in the field, notably Crest and Berkeley, they offer a reliable market for the future.

Yet for much of the industry the cooling in business and consumer confidence in recent weeks must be a concern.

Some private markets remain buoyant and this week electrical contractor T Clarke pointed to a sharp upturn in the London commercial property market.But it is hard to see how developers can continue to expand office supply nationally in the absence of significant rent rises and commercial activity may follow the industrial sector into a slowdown.

The outlook for civil engineering remains mixed and higher interest rates will take their toll on private housing repair and maintenance work.

These factors come on top of the increasing pressure on margins from rising costs and a deceleration in tender prices, which the Construction Confederation recently warned about.

While its recent trade survey painted an optimistic picture about workloads over the coming year, materials price rises and the growing regulatory burden are growing concerns.

Against this background, many of the privately owned medium-sized contractors may do well to match the sparkling financial results they are currently reporting when they unveil figures this time next year.