Despite all the recent doom and gloom many building firms have good reason to be optimistic about the next financial year
You could be forgiven for being overly cautious about the industry's prospects over the next financial year given that the credit crunch continues to stimulate press debate and share prices have recently plummeted at an alarming rate. But while detailed planning and preparation is dominating the corporate fiscal agenda I would like to suggest a few reasons to be cheerful.
Recent research conducted by the CBI and Alliance and Leicester revealed that – in the construction industry at least – businesses are feeling relatively positive about the future. The CBI reports that only 19% of firms believe that the credit crunch is or is expected to affect their business decisions or plans.
Alliance and Leicester’s SME survey revealed that over one-third of the UK’s SMEs feel optimistic about the year ahead and less than one in six respondents claim that the financial outlook for 2008 is negative. Similarly, a recent article in Building, which claimed that insolvencies across all industries are set to increase by 8.3%, also recognised that this growing number is not a recent trend, thereby diminishing the immediate need for widespread alarm.
Forecasts show that construction order books are full, with new work output in the industry up 14% and the value of work having risen by £3bn. We must of course be realistic about the potentially negative impact that the economic slowdown is likely to have on new construction developments but one sure thing is that public sector housing activity is set to continue well into the future and deliver strong returns for all companies operating in the arena.
As John Calcutt’s seminal review of the sector revealed, industry does have the capability to deliver against the government’s ambitious housing delivery targets, provided they are given the right tools. Land supply remains a primary concern for housebuilders, and refurbishment could and should begin to play a role in delivery as a means of minimising the contentious issue of development on the green belt and maximising the potential inherent within our existing stock.
The issues surrounding affordable housing demand entirely separate consideration, but it is possible to confidently assert that this sector is likely to remain a focal point for companies looking for an element of financial stability.
Added to this, the chancellor’s 2007 pre-budget report and Comprehensive Spending Review announced considerable investment in the wider public sector, more specifically in education and healthcare, thereby presenting further opportunities for the taking by construction firms.
For the private sector, the outlook is undeniably bleaker; companies operating in the commercial and private housing sectors will do well to escape current conditions unscathed. Again, planning, preparation and a well-informed view on what is a constantly changing situation will be critical in minimising any long-term impact on businesses. In such a complex environment dependent on external market influences, simplicity will be the best form of defence.
Where possible though, the message to industry must be to stay positive and take an optimistic, albeit realistic, stance on the credit crunch. Projects such as the Olympics, Crossrail and Thames Gateway are giving the UK construction industry a high-profile position on the world stage, let's start taking a similarly large-scale perspective and concentrate on what we can do, which includes overcoming the current obstacles in our way.
Stephen Gee is managing partner QS firm John Rowan & Partners