Construction sector recovery still fragile, says Grant Thornton
Recovery in the UK’s property and construction sectors is “still fragile”. That’s according to specialists at Grant Thornton in Birmingham, who said companies should take caution after this week’s shock collapse of building company Rok.
Commenting on provisional data for the third quarter, David Bennett, restructuring partner in the firm’s Recovery and Reorganisation practice, said that administrations in the construction sector have fallen “for more than six consecutive quarters”.
Bennett said: “This is great news for the industry, particularly as the drop in administrations is 21 per cent, which is more than the national average fall of 19 per cent. But real recovery in the industry is still very fragile, with order books generally not strong. This is all the more evident by the recent failure of Rok.
“The Comprehensive Spending Review announced some measures to help the sector, such as an increase in capital spend to fund long term projects, which will impact positively on large scale civil contractors and social housing developers.
“However, wider public sector cutbacks in infrastructure spending will undoubtedly have a negative effect on the number and value of projects available for regional builders. This could mean that the medium to small regional outfit may find that competition becomes even keener for an ever-decreasing share of work from local government.”
There has also been a decline in business failures in the property sector, which are down by 49 per cent from the year’s second quarter.
Mike Davidson, of Grant Thornton’s distressed property team, said: "Fewer business failures in the property industry is an indication that the sector is moving in the right direction. The huge decline in the number of business failures in the last quarter may also be a sign that lenders are increasingly working with borrowers to find a solution that avoids going into administration.
“The immediate panic when the economy started to slow down has calmed and there has been time for businesses to identify possible strategies to continue to service the debt on loans. Property companies still face very difficult conditions, which may worsen if house prices continue to fall.”
