Irish construction remains optimistic and eyes further capital investment as distress levels in the industry ease, according to Interpath Advisory. However, market risks remain as wage and cost inflation and access to capital identified as most considerable challenges.
Analysis from the independent advisory firm shows that there were 97 cases involving construction-related companies in 2023, representing 14% of total insolvencies in the Republic of Ireland across the year, the second largest contributor behind wholesale and retail trade.
However, while the volume of business failures in construction increased by 42% from the previous year (2022: 68), the rate has slowed from a peak in Q4 2022 (35) to Q4 2023 when 19 cases were recorded. Across the Irish economy there were 692 insolvencies reported by the end of Q4 2023, compared to 519 in the same period to 2022. This equates to a third (33%) increase year-on-year.
The findings come as Interpath Advisory conducted research alongside the Irish Plant Contractors Association (IPCA) to gauge the views of plant owners, hirers and contractors in the Republic of Ireland, and found that most respondents expressed optimism about the overall health of the construction industry.
A majority of respondents also said they were planning to increase their capital investments in the upcoming year, while a significant proportion were planning to expand their workforce. Furthermore, more than half of the individuals spoken to expected to see a rise in profits.
However, there was acknowledgment that the planning and regulatory landscape would remain a challenge over the coming 12 months, while ‘wage and cost inflation’ and ‘cost and access to finance’ were identified as the most considerable risks they faced.
Brendan O’Reilly, Director at Interpath Advisory in Ireland, said: “Irish construction has weathered some turbulent trading conditions in recent years which sparked a peak in insolvency cases across the sector early last year. But, the industry may be turning a corner. The pervasive gloom is making way for some optimism as confidence to invest returns, not least thanks to liquid debt markets, positive noises on interest rates and some of the downward pressure on inflation.”
Ken Fennell, Managing Director at Interpath Advisory in Ireland, added: “Amidst the optimism, we can see that construction leaders are still cautious and recognise the continued risks they face given that the line between ‘stressed’ and ‘distressed’ can be incredibly thin. With further geopolitical and economic uncertainty globally, the full impact of recent headwinds may not yet have been fully realised. We are also mindful that the extension of the Revenue Debt Warehousing Scheme by the Revenue has provided some reprieve for many businesses in the sector but is set to expire in May 2024.
“Management teams have been through enough not to let down their guard and will be vigilant in spotting the warning signs of distress in their trading environment. The earlier they pinpoint those issues the more levers they will have to pull to avoid trouble and continue with their growth ambitions.”
