Construction and real-estate firms now account for almost 30% of the 37,722 UK companies that are in critical financial distress, according to the latest Begbies Traynor Red Flag Alert, published in November.
The report also noted serious concerns about both the construction industry and real-estate and property services sectors due to critical financial distress, jumping 46% and 38% respectively in the second quarter of 2023. The figures were depressing, delivering an expected but still heavy blow.
In my 20-plus years recruiting for the UK construction professional services sector, I have witnessed significant downturns in the economy that have affected the industry.
Without question we are experiencing a slump similar to these previous recessions, due to the perfect storm created by Brexit, a global pandemic, the Russian invasion of Ukraine and the subsequent cost of living crisis.
As a result, there is a lot of market uncertainty as 2024 begins. Projects of all sizes, whether residential, commercial or mixed-use stalled throughout 2023 as costs spiralled exponentially.
Considering that large-scale developments take many years to plan and design before a shovel even goes into the ground, this means costs will have risen dramatically beyond developers' starting budgets. Sadly, this means that many projects become unviable.
The other issue affecting major developments are the ongoing changes to planning legislation. The Building Safety Act will introduce mandatory second staircases for buildings of more than 18m from 2026, which will have a massive impact on the construction process from a time and cost perspective.
Meanwhile, the rise in the cost of living is pushing up salaries. It is proving challenging to attract chartered quantity surveyors and project managers from one consultancy to another, similar firm. Instead, we are seeing a rise in counter-offers due to the lack of quality candidates in the market.
Despite this shortage of active candidates, the consultancy market is the more fluid part of professional services recruitment in construction. The reason is that, as developers run ever-tighter budgets, outsourcing to consultancy teams can be a more cost-effective option.
Although the market has constricted, we are still seeing movement from those seeking higher salaries or career development. The challenge for us as recruiters is to secure more tempting opportunities, such as client-side and developer-led roles.
We should bear in mind that the market will recover, though. If interest rates continue to level out, as is expected this year, investors will feel confident about buying assets at a reasonable price, and we should see the market stabilise.
In the meantime, we can expect to see industry movement and significant changes such as insolvencies, cancellation of projects, or new work practices emerge.
As a recruiter, Madison Berkeley is seeing these changes manifest in new roles and job development in certain areas of professional service.
For instance, we have seen the emergence of the head or director of construction role, sometimes also referred to as a contracts director. These roles are still relatively new to some organisations, especially smaller businesses; but the demand is there.
The reason for this growth comes from a need to protect budgets and deal with the increasing costs of ground-up developments. The cost of materials has ballooned in recent years, for example, presenting challenges for budgets and completion dates.
In addition, contractors are too often unable to get the materials they need, yet they do not push back on the supplier to provide a better-priced alternative or source materials in a reasonable timeframe. This leaves the developer to shoulder the cost of the delay.
The head or director of construction directly challenges on-site contractors, and by proxy their suppliers to meet the agreed budget by delivering the services or goods on time, with the anticipated result being that the budget remains intact and that the development continues on schedule.
The CEO of one of our developer clients came from a hands-on construction background, and says he has seen definite value from hiring for a head of construction.
He feels that there is a lack of specific contractual knowledge and material sourcing skills in his business, which can be ameliorated by appointing a head of construction.
The types of client that are coming to us in their search for such heads or directors are varied. But we are seeing an increased demand from industrial and logistics developers, simply because there continues to be growth in this sector – certainly outside London.
These opportunities represent an interesting development for those currently in quantity surveyor or project management positions, given that both disciplines have skills that can be transferred into a head of construction role.
It is likely that you may need to move to a contractor to gain such hands-on construction experience, however.
We find that some of the most attractive candidates in the market are those who have a well-rounded CV showing their experience in consultancy, contractor and developer roles.
Quantity surveyors have considerable experience in determining whether schemes are feasible in terms of cost planning and procurement, which are great transferable skills.
Project managers meanwhile know how to programme, plan, organise and pull teams together, which may be attractive to those developers recruiting for head or director roles.
It is important to remember, though, that every brief on a job is different and will require different skill sets.
In quieter markets, when the economy is stable, employers and HR departments often have a more robust recruitment process: qualifications and experience will be picked up on and challenged, and the interview process may well be longer. Clients have the luxury to be choosy.
It is certainly a good idea to get as much experience in all disciplines before you seriously consider director or head of construction roles.
Clients are looking for the ability to oversee large projects from start to end. Qualifications are also key, with a preference for those who are chartered surveyors.
'Clients are looking for the ability to oversee large projects from start to end'
The year ahead won't be easy, but the hope is that we will see the market opening up. I predict we will then see pressure to grow teams.
In the meantime, we need to continue to make our industry more appealing. We must get into schools, educating children and young people on the roles available and ways to access them.
Supply and demand of skills and labour will always be a problem in our industry if it is not dealt with properly.
The RICS UK Awards are free to enter, and recognise outstanding achievement, teamwork, and companies in Construction.
As part of our ongoing commitment to raise the profile of industry professionals and teams, the Awards aim to demonstrate the positive impact that the built environment has on individuals and communities, while also promoting the role that the profession has in making projects a reality.