The contracting industry has experienced good demand since 2013, with construction activity buoyant across several end-use sectors, and overall construction output increasing by 11% between 2014 and 2016. The sectors which have seen the highest levels of construction activity are the infrastructure, commercial office, education and entertainment sectors. As a result, these sectors provide some of the largest shared of contracts awarded by value.
Infrastructure continues to be the single largest sector for contractors by a significant margin, this sector remains highly volatile in terms of growth. The commercial offices sector has seen substantial output growth in both 2015 and 2016 respectively. The public sector has been affected by austerity measures in recent years but still provides opportunities for contractors. Over the past few years, there have been significant areas of growth in public sector construction contracts especially in Yorkshire, East Midlands and the South West. In particular, the ‘Northern Powerhouse’ and ‘Midlands Engine’ initiatives have seen a rise in tenders in these areas.
With competition for construction work now stronger than ever, main contractors have been considering small and medium-sized contracts in a bid to maintain workloads and boost finances. This change in strategy has intensified as large-scale construction contracts become few and far between and many contractors are now bidding for schemes around £20m and lower which are very small in comparison to previous years.
Despite the recent uplift in workload there still are many threats facing construction contractors. The increase in workload is putting pressure on main contractors who have secured work at low prices, with material and labour costs rising. Additionally, many contractors are now struggling with capacity issues to meet increased output requirements. Furthermore, margins remain under pressure influenced by rising material costs and wage inflation. The construction industry continues to face acute labour shortages in many key areas notably trades, such as bricklaying, roofing, carpentry, plastering and general labouring across the country.
Going forward, growth in the contacting industry is expected to be underpinned by opportunities in large-scale infrastructure, public sector and private residential work as new private commercial sectors suffer a slight slowdown. The contractors market is also likely to see increasing consolidation driven by the larger UK players as well as interest from overseas firms from Europe and Southeast Asia.