A perfect storm is poised to hit the UK's construction sector as new research shows more than a quarter of firms are at risk of insolvency by 2020.
Brexit uncertainty has rocked the construction sector with 26 per cent of companies currently showing warning signs of being at risk of failure, according to data from accountancy firm Moore Stephens seen exclusively by City AM.
“Uncertainty over future demand from potential purchasers and occupiers, particularly in the London office market, combined with rising materials costs and the increasing problem of skills shortages, could create a perfect storm," said Lee Causer, restructuring partner at Moore Stephens.
Companies building commercial properties were particularly at risk, with 32 per cent facing an increased chance of going bust in the next three years.
The commercial sector has faced growing pressure from uncertainty over Brexit negotiations, which has thrown their ability to secure buyers or tenants for new buildings into doubt as global multinational companies debate whether to maintain UK staff levels.
Residential property building companies were at slightly lower risk because the housing shortage is likely to sustain demand for new homes as the government prepares to deliver on its promise for one million new homes by 2020. In this area, 23 per cent of companies were at risk.
Alarm bells rang for the sector last week when construction giant Carillion had almost £600m wiped off its market capitalisation over the course of a few days. While analysts noted Carillion had specific balance sheet issues, they said it was a product of the construction sector's famously narrow margins.
“Construction companies need to ensure that their business models are resilient enough to withstand whatever the next few years has in store and put contingency plans in place to cover all eventualities," Causer warned.