The number of property and construction companies falling into administration in the third quarter of this year increased by 11% to 117 compared with 105 in the same period last year, according to research by Deloitte, the business advisory firm.Nigel Shilton, real estate industry partner at Deloitte, comments: “The property and construction sectors have been two sectors hardest hit by the current economic uncertainty. Rising energy prices and significant cuts to public and private sector building projects have brought a large amount of planned projects to a grinding halt. The next quarter is going to continue to be tough for the construction sector and will particularly hit medium sized firms as opposed to the larger national contractors.
“The property market continues to remain flat, and reflects the current concerns around unemployment and declining incomes. Whilst it is welcomed news that the Bank of England’s new mortgage approval figures for August 2011 increased to 52,000 – the largest approval rate in any month since December 2009, the housing market still remains subdued. The favourably low interest rates have done little to stimulate sales in the housing market, as tough credit conditions have locked thousands of first-time buyers out of the market, with only those with a substantial deposit able to get a mortgage approved.
“We are already seeing sentiment turning and property yields falling off which is being evidenced by deals either not completing or “price chipping” by purchasers before they commit to complete. Therefore, I am afraid the next quarter is not going to bring any relief from the pressures that property and construction companies are currently facing,” said Shilton.
In the retail sector, the number of administrations fell by 20% to 28 in the third quarter of this year compared with 35 in the same period last year.
Lee Manning, restructuring partner at Deloitte, comments: “Whilst this may be taken by some as a positive sign that the industry is beginning to stabilise, retailers are coming under increasing pressure as shop sales continue to slow. The recent failure of Alexon, the women’s retailer, may be an indicator of more to come for the larger underperforming fashion based retailers. These figures indicate the calm before the storm, we very much expect, if the traditional seasonal sales period fails to meet expectations, that we will see a significant increase in the number of retail administrations in the New Year.”
Overall, the third quarter of 2011, saw a decline of 4% on the previous quarter, with a total of 477 companies falling into administration compared with 498 in Q2 2011.