BESA reports positive outlook for MEP sector

Mechanical, electrical, and plumbing (MEP) contractors are increasingly optimistic about their future growth prospects, according to a new report from the Building Engineering Services Association (BESA).

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

Collective turnover is up by 16% compared to last year, and most reported robust growth prospects for the next two to five years.

The report did note recent high-profile insolvencies in the sector, such as Michael J Lonsdale, and ongoing consolidation.

However, it also highlighted a more hopeful outlook among senior managers, with many firms indicating they had “turned a corner”.

Market value and technological advancements

The UK M&E contracting market is worth approximately £20 billion and constitutes around a fifth of the UK construction sector’s GDP.

Interviewees for the BESA report stated that this value is likely to increase as building engineering services become more 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 warned that financial challenges would persist for the next two to three years.

BESA’s chief executive officer David Frise agreed that market conditions remain “tough” and that profitability is still “relatively low.” 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.”

Net zero targets and risk perception

The report indicated that growing pressure on clients to meet net zero targets and increased investment in refurbishment and retrofit of existing buildings are contributing to improving market conditions.

However, investors remain cautious towards construction-related businesses.

Frise said: “The sector is seen as ‘risky’ and cash poor by the money markets and shifting that perception will take some time.

“However, our report and interviews with leading contractors demonstrate that most large MEP firms have a strong foundation for progress and are focused on reducing their exposure to risk, which should play well with insurers.”

BESA also noted that project bank accounts would play a larger role in industry financing over the next few years as more clients recognise their potential to insulate from risk while ensuring better cash flows through supply chains.

Recovery and future growth

Abdul Tantouch, head of content at AMA Research, highlighted the M&E contracting market’s “significant resilience” after rebounding from a 12% decline in 2020 due to the Covid-19 pandemic.

Tantouch added: “The sector has not only recovered to pre-pandemic levels but is now on a trajectory of robust growth.

This is being driven by the integration of innovative practices and technologies aimed at advancing towards net zero carbon emissions.”

Tantouch said the market is expected to achieve a value of almost £21 billion next year, supported by key trends such as increased demand for data centres and green energy solutions.

The Minimum Energy Efficiency Standards (MEES) legislation is also expected to fuel further growth as commercial building owners and managers look to avoid unlettable ‘stranded assets’.

Challenges in productivity and skills

Despite the positive outlook, the industry faces significant challenges in productivity and skills, according to BESA.

Increasing digital skills within the workforce and improving diversity are essential for sustained growth.

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.”

IFSJ Comment

The latest report from the Building Engineering Services Association (BESA) provides a comprehensive overview of the current state and future prospects of the MEP sector.

Despite the challenges faced over the past few years, including high-profile insolvencies and ongoing financial headwinds, the sector shows resilience and optimism.

The report highlights a significant increase in collective turnover and a positive outlook for future growth, driven by advancements in building engineering services and a focus on high-value sectors.

However, the report also underscores persistent challenges, particularly around financial stability and investor perception of the sector as ‘risky’ and cash poor.

Addressing these issues will be crucial for sustained growth.

The emphasis on digital skills and diversity within the workforce is also a key takeaway, pointing to the need for continued investment in these areas.