Industry report: Construction 2023

The UK construction industry has witnessed a period of decline in recent years –negatively impacted by the cost-of-living crisis, post-Brexit reforms, pandemic affected supply chains and now a rising interest rate environment.

In our latest Industry Report, Lynn Lin and Hiten Patel provide an overview of the construction sector, including market structure, competitive landscape and future outlook.

The key takeaways from this report include:

• Industry revenues have contracted over the past five years at a compound annual growth rate (CAGR) of 2.3%, but are forecast to rebound, growing c.2.0% per year through 2029.
• There are two principal sectors within the construction industry – residential and commercial. The residential sector has struggled with the tough financial climate of the past five years, particularly given the rise in cost of building materials and skilled labour. The commercial sector has recovered to pre-pandemic levels, but it too has been impacted by economic headwinds, resulting in a decline in profitability at a CAGR of 11.7% over the last five years.
• The three largest residential contractors comprise 17.4% of market share, and commercial construction 15.7% – exemplifying the industry’s low concentration. Strong order books, predominantly with large-scale public projects, have underpinned FY2023 revenue growth.
• The industry saw significant M&A activity across 2021 and 2022, as low interest rates following the peak of the pandemic fuelled opportunistic acquisitions. However, there has been a 22% decline in deal volumes in 2023, currently at 35 deals , compared to the equivalent period in 2022.