- Contents
- *Executive Summary
- The market
- Figure 1: M&E market in Great Britain, 2010-14 actual and 2015-2019 forecast
- Figure 2: Segmentation of M&E market in Great Britain, 2010-14 actual and 2015-2019 forecast
- Figure 3: Segmentation of mechanical contracting market in Great Britain, 2015
- Figure 4: Segmentation of electrical contracting market in Great Britain, 2015
- Market factors
- Figure 5: New construction activity, 2009-14 actual and 2015-19 forecast
- Figure 6: Civil engineering activity, 2009-14 actual and 2015-19 forecast
- Figure 7: Development of Ad hoc and contract work in the R&M M&E market in Great Britain, 2009-13 actual and 2014-2019 forecast
- Companies
- Figure 8: Analysis of the changes in the structure of the plumbing, heating and air conditioning sector and the electrical installation sector, 2011-15
- What we think
“The M&E sector has suffered an elongated period of difficulties, reflecting the downturn in demand from the new construction sector and consequent over-capacity. Even the less volatile maintenance sector has suffered from price pressure. New construction demand is now growing strongly, with prospects of not only real-term growth in a sector that will expand ahead of the UK economy, but also a correction of prices that is expected to further improve market growth.”
The market
The aspects of the M&E sector involved with maintenance have tended to be stable, while those associated with new installations has been more volatile as they are influenced by new construction activity. That same volatility in new construction activity generated significant growth in 2014 following very challenging conditions, and total M&E contracting output in Great Britain is expected to demonstrate real growth after 2015, reflecting a wide range of features, but boosted by improved expectations for new construction activity. Both sectors have been subject to major cost pressures during and after the recession, and 2015 has proved to be a difficult year as these price pressures have continued to restrict market growth. This is a significant market dampener and a legacy of major overcapacity in the industry as demand plummeted during the recession and subsequent flat economy. While strong growth was evident in the market in 2014, this has not fully continued into 2015.
The increasing emphasis on the digital age will marginally increase the importance of the electrical contracting sector over the next five years.
In the mechanical electrical engineering sector, R&M activity for industrial and commercial applications is a major area of demand, followed by R&M for the housing sector, and private industrial and commercial construction.
The importance of private new construction is much stronger for the electrical contracting element of the market:
Market factors
The major driving forces for the market are construction activity, and repair and maintenance contracts and activity. Elements of repair and maintenance contracting are covered by maintenance contracts, but the sector also includes improvement work. Maintenance contracts tend to be less cyclical than new work or improvement work.
The magnitude of the 2008 economic downturn was such that it not only had a major impact on the new construction market, but also encouraged some maintenance contracts to be reviewed to save clients money. There was also an increase in improvement activity due to the lack of new construction work. While underlying market conditions are now much stronger in the new construction sector, the industry has struggled to fully rectify price pressures to date.
In the construction sector, overall activity has long exaggerated GDP development - both when the economy is growing and when it fails to grow, leading to strong and consistent growth prospects after a very difficult period following the recession.
Demand trends from the civil engineering sector have been much stronger and followed a very different pattern to the construction sector, where utility capital expenditure levels have been subject to long-term determinations:
In the R&M sector, the importance of contract work, which made such major gains prior to the economic downturn, faltered in terms of proportional importance. However, the market is now beginning to emerge again as the incorporation of M&E into facilities management contracts bolsters the market.
Companies
Some facilities management companies are traditional M&E contractors that diversified to offer a greater range of services to their client base, creating opportunities to cross-sell services. Faced with this competition, other facilities management companies from different heritages were encouraged to diversify into M&E, often through acquisition, leading to M&E becoming an element of the facilities management offering.
However, demand for M&E from new construction activity was severely affected in the recession as new construction activity declined as strongly as any market, leading to major overcapacity and a consequent squeeze on prices. Even in the current comparatively buoyant new construction conditions, there have been difficulties in regaining the price point. This has resulted in several facilities management companies with M&E interests looking to exit new construction activity due to the volatility of demand, while looking to maintain a presence in maintenance activities.
The overall industry is characterised by some very large national operators and a myriad of micro and small operators:
What we think
During the weak volume demand that inevitably followed the economic downturn, the pressure on market value was furthered by intense price pressure as the M&E sector suffered as much as any from low pricing by main contractors. The market is now significantly more buoyant, but the industry is still struggling with the price structure, which should continue to ease as underlying growth factors increase demand for services.