M&E sector optimistic on future growth

UK: M&E contractors are increasingly optimistic about their future growth prospects, according to a new report from the Building Engineering Services Association (BESA).

BESA’s latest annual Top 30 M&E Contractor report found the sector’s largest companies in good spirits despite most experiencing severe difficulties over the past few years.

Collective turnover is reported to be up by 16% on last year, with most respondents reporting robust growth prospects for the next two to five years.

Despite a string of recent high-profile insolvencies and continuing consolidation across the sector, the report found senior managers in a more hopeful frame of mind, with most firms saying they had “turned a corner”.

The UK M&E contracting market is worth approximately £20bn and constitutes around a fifth of the UK construction sector’s GDP. Those interviewed for the BESA report said that value was likely to increase over time as building engineering services became increasingly sophisticated and technology driven.

Growing pressure on clients to meet net zero targets and greater investment in refurbishment and retrofit of the existing building stock were seen to be contributing to better market conditions. However, investors were said to be still treating construction-related businesses with caution.

“The sector is seen as ‘risky’ and cash poor by the money markets and shifting that perception will take some time,” said BESA’s CEO David Frise. “However, our report and the interviews with leading contractors demonstrate that most large MEP firms have a strong foundation for progress and are focused on reducing their exposure to risk, which should go down well with insurers.”

BESA also believes that project bank accounts will play a larger part in industry financing over the next few years as more clients recognise how they can be used to insulate them from risk while ensuring better cash flows through supply chains.

The report also revealed that more MEP firms were being asked to take on the role of principle contractor on large multi-million pound projects because the building services elements account for an increasing proportion of the overall value.

Abdul Tantouch, head of content at AMA Research, said the M&E contracting market had demonstrated “significant resilience” having rebounded from a 12% decline in 2020 caused by the covid-19 pandemic.

“The sector has not only recovered to pre-pandemic levels, but is now on a trajectory of robust growth,” he added. “This is being driven by the integration of innovative practices and technologies aimed at advancing towards net zero carbon emissions.”

Tantouch said the market was expected to achieve a value of almost £21bn next year, supported by key trends such as increased demand for data centres and green energy solutions.

Minimum Energy Efficiency Standards (MEES) legislation is also expected to fuel further growth as commercial building owners and managers look to avoid ending up with unlettable ‘stranded assets’. This will lead to more MEP contractors working directly for end clients, according to the report.

Along with promising UK-wide GDP growth in the first quarter of this year, another key development is the easing of inflation pressures. While material and labour prices remain at historic highs, pricing stability has returned making it easier for companies to plan.

However, most of the firms interviewed said it would take time to adapt to the biggest change to building safety regulations in a generation in the shape of the Building Safety Act.

The industry also has some major problems around productivity and skills that will have to be addressed if growth is to be sustained, according to BESA, which emphasised the importance of increasing the level of digital skills in the workforce and improving diversity.