Another 3,515 construction companies went bust over the last year[1], says Wilkins Kennedy, the Top 21 accountancy firm.
Although this is an 18.4% decline from 4,305 insolvencies[2] in the previous 24 months, Wilkins Kennedy says that the continuing high volume of construction sector insolvencies show the sector is still a long way from full health.
Wilkins Kennedy explain that the likelihood that bank lending to the sector will remain weak and the continued impact of Government spending cuts mean that the construction sector will continue to face tough trading conditions.
Comments Anthony Cork, Partner at Wilkins Kennedy, Restructuring & Recovery:
“Although the construction industry has bounced off the floor, the huge number of insolvencies we’re witnessing confirms that the sector is still fragile.”
Explains Nick Parrett, Partner, Head of Property & Construction at Wilkins Kennedy:
“The good news for the sector is that both office rents and house prices have been clawing their way back.”
“We are also seeing a modest recovery of some public sector activity. For example, in the education sector, where work had ground to a halt, we are beginning to see a number schools starting to commission work again.”
“Given the reduction in levels of orders that the construction sector has had to deal with, the sector has done better over the last year than some might have expected.”
However, Nick Parrett warns that the full impact of the Government austerity programme has still to feed through.
The Highways Agency, the Government body responsible for building and maintaining England’s road network and the largest customer to the construction sector, is due to cut its spending by 44% during the next three years, from £1.6bn in the 12 months to March 2011 to £922m by 2014.
Nick Parrett comments: “Construction orders in Q2 are at their lowest level since 1980 and sales by the companies that produce basic building products, such as cement and steel, have started to decline again this year.”
“Demand for commercial construction is also limited with many projects being held back by the lack of funding. We expect this to continue to cause a bottleneck to growth for some time.”
“Developers are finding it very difficult to get banks to roll over existing loans for sensible lending margins or to get funding to get new projects off the ground – no matter how robust their business plans. That impacts on a whole supply chain of contractors and subcontractors.”
Construction was one of the sectors hardest hit since the recession, registering a total of 11,862 business failures since the beginning of 2009.
Key
[1] Last 12 months to Q2 2011 (last data available)
[2] Include Compulsory liquidations, Creditors’ Voluntary Liquidations,
Receiverships, Administrations, Company voluntary arrangements (CVA),
Trading-related bankruptcies.