Building contractors struggle to fill 2023 order books amid economic headwinds

Two surveys published on Monday showed a tougher outlook for manufacturing in 2023, increasing pressure on firms already grappling with difficulties such as labor shortages and higher material costs.

The closely watched S&P Global/CIPS UK Construction Purchasing Managers’ Index brought good news about commercial construction – which grew at the fastest rate in nine months in February – but residential building declined for a third month in a row.

Meanwhile a survey among London’s largest building contractors found that 25% of their new work has yet to be secured for 2023. A year ago, companies had only 15% left to fill their order books to meet the target.

Global infrastructure consulting firm Aecom spoke to large builders and subcontractors with a total turnover of £6bn working on projects worth £50m or more in London.

It emerged that nearly a third of their projects were affected by the economic and political turmoil last year, leading to plans being delayed, put on hold or cancelled.

Construction chief executives will be waiting to see what Chancellor Jeremy Hunt will announce in a budget on March 15 that could boost business after a turbulent period.

The housebuilding sector has been under pressure since the collapse of the September mini-budget, when higher interest rates added to mortgage costs. In the market for offices, where hybrid working is popular, some investors are waiting to see how much interest is there before launching a development.

Jo Streeton, managing director of buildings and spaces for Europe and India at AECOM, said the survey “outlines a challenging outlook for London contractors in 2023”.

AECOM’s Brian Smith said: “If production falls as expected contractors will likely see a drop in revenue, as developers delay office buildings and residential projects because of higher financing costs and other areas not working “

Smith said: “The property sector and the construction sector that supports it, need stability and inflation falling above all else. Inflation has proved very difficult for the sector, with the cost of labor and materials rising, making it difficult to create new jobs. contributing to the recession.

But there are some encouraging signs for the industry, with tier-two contractors – smaller companies typically used by main contractors – doing better. Their order book levels have improved so far, helped by a wider spread of work.

Looking to the future, companies expect to see a boom in work in the refurbishment market, as office developers look to extend the life of their existing properties and meet sustainability and net zero targets. Contractors are expecting that inflation will come down by the end of the year.