Small Building Companies Taking Strain in SA

Small Building Companies Taking Strain

An article in Business Day reports that it is not just real estate agents who are facing job losses, small and mid-sized construction companies that turned down work a year ago because they were so busy are now “begging for work”.

John Whall, Montagu Property Group’s director of development, construction and marketing, says that a year ago these companies were “extremely busy” and did not even want to “price jobs”. He adds that, “A lot of them were building residential developments [which] have come to a halt because of an oversupply”.

The spiraling interest rates and glut of properties on the market in the last year has caused a dramatic reversal of fortunes in the construction sector. Eskom and its electricity crisis are also having a negative impact. Whall says that mid-sized construction companies are literally desperate to gain work on office and industrial property developments.

David Green, MD of commercial and industrial property brokers Pace Property Group, says that those facing much tougher times are the small construction companies. “It is unfortunately quite concerning as many of the small construction companies currently only have the projects which have not yet been completed on their books and are not able to obtain further contracts for the balance of 2008 and beyond”.

According to Green, “This is a result of the residential slowdown, the electricity crisis and the escalated building costs, which have rendered many projects unfeasible”. He maintains that the larger companies are fine because there is still “more work available to them, particularly from the infrastructural development, government projects and other major building works. This is not the same for the small to mid-sized construction companies”.

Green is concerned that many of the smaller companies will be unable to weather this particular storm. “[T]hey will be laying off a lot of staff and this sector is a major employer within the construction industry as a whole”.

First National Bank property strategist, John Loos says that if mid-sized construction companies had previously been busy with residential and retail developments then they would most certainly be experiencing a “significant slump in work”, generally speaking.

Loos believes that there is still a “strong need for space, given the low vacancy rates” in construction activity in the industrial and office property sectors. He says that in these two sectors, it would be various supply-side constraints that would be more of an issue periodically for these companies.

The information in this article is courtesy of Business Day (“South Africa: Small Building Companies Begging for Work”, 23 May 2008).

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