UK property developers could be pushed to the edge of failure due to zero growth, sliding profits and escalating debts, according to a report this week.
Industry analysts Plimsoll Publishing said that a third of the top 1,000 companies in the UK said they were having a tough trade off between protecting margins and appeasing price sensitive customers.
Plimsoll has rated each of the UK’s largest property development companies based on their overall financial performance into one of five financial ratings: strong, good, mediocre, caution and danger.
Of greatest concern are the 553 companies which are being hit the hardest and have been classified within the danger category. Plimsoll said their profit margins were falling and most of the firms in this rating are making a loss. It said: ‘Most are taking on debt at an alarming rate simply to cover costs’. David Pattison, senior analyst on the report, said: ‘I think these figures just prove the point that we have all been aware of that a period of consolidation is long overdue. Bit by bit the weaker players will be removed from the market.’
Obviously, a period of consolidation will have consequences, aside from the expected redundancies. The report indicates that up to 593 firms might need to shed jobs and for some businesses, if the company is to survive, as many as 30% of the payroll may be forced to leave.
But there is still some room for optimism for those companies rated as ‘strong’ and ‘good’. These firms are ideally placed to gain from the fall-out in the market as they benefit from stronger business models and tighter financial management.