It’s a busy
weekend ahead as the annual Penistone Gala is on (tickets still available if
you want some comedy, real ale, music and homemade treats in your life but
having spent a lot of time of trains this week I’ve had time to reflect on a
few points.
The CPA noted
recently that construction has grown for the eighth straight quarter in Q1 2015
and I’m not surprised – I’ve done London, Leeds, Sheffield, Edinburgh and even
Penistone this week and they all have construction projects ongoing whether
it’s commercial, industrial or residential. The market is very actively and in
a good way. Lots of sensible decisions being taken but at the same time some
sensible risk around speculative builds (though in truth some of this is purely
because a tenant is on the cusp of signing up!).
The good news is
that this upbeat mentality and growth is coming across all parts of the sector
– large contractors, civil engineers and even SMEs and although yes there has
been some causalities along the way we are moving into a good place with 50% of
building contractors reporting growth.
A key area for
this growth is the housing sector – it’s everywhere and even there we still are
not building enough, but we are heading the right way.
The flipside is with growth comes additional costs with labour costs increasing – a combination of catching up on a few years of no growth but also reflecting skills shortage putting the power into the labours’ hands. Similar increases are occurring in material costs. The challenge for the industry is offsetting these costs increases by passing to the ultimate consumer. Not easy! A number of businesses are looking to technology and partnerships to keep the business growing but in a safe place risk wise.
An example recently is the acquisition of Shepherds construction business by Wates Group. The deal works well for Wates in their ambition to grow the business and the culture fit will work given both businesses are family-owned with similar values. Provided integration of the two is well planned and coordinated then there is potential here for Wates to grow significantly in the North but also use the additional resource to support the South.
It was no secret that Shepherd Group was reviewing the entire business and following the homes business being sold it was no surprise to see construction go next having struggled over recent years to complete with the large contractors. It does allow Shepherd to focus on its other offerings which generate good returns.
The challenge during the all-important tender process is a long term view. You can drive growth by keep fees low but it will come at a cost that you are unable to meet the demands of your labour. There needs to be a balance between keeping internal and external stakeholders happy. The Wates example shows some consolidation in the industry and this is expected to continue as businesses battle for growth – the question is who is next?
Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to
property and construction.
Enjoy
the weekend
Lee
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