The total turnover of the UK construction sector has jumped another 6% in the last year to £218 billion (244bn), and is now up 20.7% on its £180 billion low during the depths of the recession in 2009-10, according to BNP Paribas Leasing Solutions.
Basing its figures on company accounts in the 12 months to 31 March 2015, BNP says the surge in turnover has come from across the housebuilding, commercial property development, and infrastructure sectors.
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The lessor said in a statement that construction companies have dealt with the sudden strain on cash created by the sharp pick-up in orders by making more use of leasing to fund their expansion.
Construction companies increased the amount of finance raised through leasing by 19% in the last year to £1.68 billion *, up from £1.41 billion the previous year. The capital equipment acquired has enabled them to take on an expanding pipeline of new building projects without straining their cashflow or depleting their cash cushion.
Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions said companies that cannot properly finance the expansion needed to deal with a recovery in orders can find themselves vulnerable to sudden cashflow shocks. This is why many insolvency practitioners say that economic recovery can be almost as dangerous to some businesses as a recession.
The construction sector generated £74.6 billion in new build projects orders in 2014, up from £65.4 billion in 2009, illustrating the scale of the expansion in capacity needed: BNP said many construction companies cut capital investment during the economic downturn and now need to replace obsolete equipment and machinery.
Residential construction companies have increased their use of leasing most sharply, up by 52% from £ 17.8 million to £ 27.1 million in the last year. The turnover of residential construction companies has grown by 21% to £20.3 billion over the same period, from £16.8 billion.
Residential construction companies turnover is expected to increase further as a result of the housing shortage and government support for first time buyers, such as through the ‘Help to Buy’ scheme and new ‘Help to Buy’ ISAs.
Commercial construction companies have also expanded their use of leasing, up by 47.3% from £261 million to £385 million of finance.
Plant and equipment hire companies, heavy users of leasing, have increased their use of leasing by 13.4%, up to £513 million in 2014/15, from £456 million in 2013/14. BNP Paribas Leasing Solutions says that this subsector is a bellwether of the need for more machinery in construction as companies hire equipment when they have multiple projects underway that cannot be resourced internally.
BNP Paribas Leasing Solutions highlights the increased volume of big projects underway nationwide, including; the Battersea Power Station redevelopment; ‘The Scalpel’ skyscraper in the City; and the Birmingham Arena Central project which will house HSBC’s new UK retail and business banking headquarters.
Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions says: "These figures show how important leasing is to the construction sector; it gives firms the flexibility to manage their cash flow during difficult periods, and to scale up their capacity quickly."
"UK construction firms are now seeing high levels of demand, and need to be able to access the machinery they need to complete projects efficiently. Leasing is helping them to deliver new homes, new commercial buildings and infrastructure, and ultimately create new jobs."
