MEP contractors optimistic about future growth prospects

A new report from the Building Engineering Services Association (BESA) reveals the building services sector is ‘turning the corner’, with mechanical, electrical, and plumbing (MEP) contractors increasingly optimistic about their future growth prospects.

The Association’s latest annual Top 30 Mechanical and Electrical (M&E) Contractor report, produced in partnership with the construction consultancy GHCS/GH Engage, found the sector’s largest companies in good spirits despite most experiencing severe difficulties over the past few years.

Collective turnover is up by 16 per cent on last year and most reported robust growth prospects for the next two to five years.

The 5th edition of the report did reflect on the string of high-profile insolvencies suffered by the sector recently, notably Michael J Lonsdale, and continuing consolidation across the sector. However, it also found senior managers are 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 £20 billion 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.

Gokhan Hassan, Managing Director of GHCS/GH Engage, said the report showed that the industry was “heading in the right direction”, but he warned that financial headwinds would persist for the next two to three years.

BESA’s Chief Executive Officer David Frise agreed that market conditions remained “tough”, and that profitability was still “relatively low”, but he praised many of the sector’s larger firms for refocusing their businesses on high value, fast growing sectors, such as data centres, research, and healthcare, and for “avoiding low bidding as much as possible”.

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

Abdul Tantouch, Head of Content at AMA Research, said the M&E contracting market had demonstrated “significant resilience” having rebounded from a 12 per cent 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.”

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.

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.

Frise said: “The financial stability of our largest firms is important because it feeds down through supply chains and has a direct impact on the profitability of thousands of smaller, specialist contractors. It is, therefore, heartening to see our top 30 in a better place following the extraordinarily challenging conditions created by the unprecedented combination of the pandemic, Brexit, and the war in Ukraine.”