Super developers: friends or foes to the UK construction industry?

Contributor

Andrew Pepper is a partner and head of restructuring at ReSolve

The construction industry is vitally important to the UK economy, with it contributing more than £125bn per annum to GDP and employing around three million people. However, as most people are well aware, the sector has faced many challenges in recent years, with the number of firms unable to pay their debts up 36 per cent from pre-pandemic levels. Unfortunately, this trend is set to continue throughout 2024, with the sector remaining the biggest contributor to UK company insolvencies.

One factor that is having an increasingly important impact on the UK construction sector is the creation of super developers. These are being formed as a result of recent mergers, such as the Barratt-Redrow deal, which has led to much larger market participants creating a ‘superleague’ of housebuilders.

What has led to the rise of the super developers?

Mergers and acquisitions are taking place among construction firms due to the need for scale to combat headwinds created by the challenging planning and regulatory backdrop combined with the rising costs across the board for raw materials. In addition, continuously high interest rates are leading to low consumer demand, high borrowing costs and general market lethargy.

Housebuilders in particular are facing a double whammy, with consumers struggling to finance the purchase of a house while at the same time seeing their cost base rise on the back of inflation and ongoing supply-chain-related issues. All of these factors lead to companies in the sector being vulnerable to takeovers and mergers and therefore the formation of super developers is a trend that is likely to continue.

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