Companies continue to be pushed to the wall in the struggling building industry

The building and construction industry is continuing to flail, with company collapses increasing.

According to Fairfax, since January 1 more than 363 companies in the building industry, excluding mining, have collapsed, more than 200 of them from New South Wales and 95 from Victoria.

Recent high profile collapses include Reed and Hastie and the fall-out from these collapses has affected hundreds of smaller construction companies and sub-contractors.

A survey of companies, consultants, service providers and customers in the construction sector conducted in May and June by Evans & Partners revealed a bleak outlook for the sector, with reports of margins in the 0-2% range.

“If exposure to the resources sector is limited or non-existent, the industry is observing the passing of a high-rise residential peak in Melbourne, commercial office “back fill” and/or shuffling the deck chairs taking precedence over new office build, all levels of governments minimising (or zeroing) their infrastructure spend and education spending diminishing,” the report said.

“Even for those who can secure work, the margins have become wafer thin and often bet on improved buying terms to make a profit. The forward pipeline is thin and the outlook bleak.”

Those surveyed for the report said that residential activity was “ultra-competitive” and that it was getting very tough for builders to win work, with one current project attracting 27 builders in the tender process versus the three to four which applied previously.

Evans & Partners found unsolicited emails from suppliers, sub-contractors and individuals looking for work have increased enormously. While there was a reasonable amount of work available for tender, it found purely price-driven pre-existing relationships account for nothing now.

Lindsay Le Compte, the executive director of the Australian Constructors Association, told SmartCompany smaller operators were particularly struggling.

“I don’t think there is any doubt that area has been suffering for a number of years post the global financial crisis and statistics indicate the residential sector is in many areas at historic lows that must impact on business,” he says.

Tim Hampton, senior economist at BIS Shrapnel, says the short-term outlook continues to be negative.

“So far we have not seen a pick-up in building approvals or commencement, suggesting that building construction activity is going to remain weak for the next few months,” says Hampton.

“The building industry has had a number of tough years now. If you look at dwelling investment it has largely gone sideways since 2004, while… costs are rising as the industry is competing with mining industry for staff and, likewise, non-mining business investment has been falling since 2008.”

Hampton says there was a “brief period of good times for non-residential building and construction with the government’s education building program. But now that program has run its course, public building and construction is on a downward trend, putting a lot of pressure on building and construction companies.”

But Hampton says there is hope in sight for the building industry with “fundamentals in place” to support a recovery in residential building towards the end of the year and into next year.

“As demand picks up next year, those firms will see their situation improve,” he says.