This year’s survey shows rapidly increasing optimism on better times ahead for the industry – but will challenges around skills and capacity, global events and macroeconomics hold it back? Carl Brown reports
Whisper it, very quietly: are we about to enter a long-awaited period of growth for construction?
With the impacts of Ukraine-linked inflation receding, the pandemic long behind us and a new government pledging reforms to boost infrastructure and housing, are the good times just around the corner?
Mark Cleverly, head of property and construction at CPC Project Services, thinks so. “I’ve got it in my head that the UK economy is poised to boom. I think the conditions are building for that,” he says, while cautioning that skills and capacity may hold the industry back.
Arcadis, in its Summer Market View report in June, said that the “mood music is improving in the construction sector” and speculated the bottom of the investment market may already have been reached. The survey was carried out before the Institute of Directors’ latest Economic Confidence Index, which showed a fall in business leaders’ optimism in the economy overall to -12 from a three-year high +7 score in July, in the wake of Labour’s warnings of constrained public finances.
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Building’s Top 150 Consultants survey this year however, which was carried out in late May, showed a strong sense of increased confidence, with a sharp increase in the percentage of respondents expecting their trading conditions to improve over the next year amid greater positivity about the wider economic outlook.
The Top 150 rankings
But first, to the Top 150 Consultants rankings themselves.
Each year, we rank the largest consultants in construction by UK fee income. This year AtkinsRéalis, fresh from its rebrand which saw the names Atkins, SNC Lavalin Group and Faithful+Gould disappear, took the number one spot from Mott MacDonald.
The firm, which declined to enter last year as it said it was not able to submit an entry “as one integrated end-to-end” business, posted UK fee income of £1.5bn, up 15% year-on-year.
AtkinsRéalis’ decision to enter means many other large firms have been pushed down a place. In addition to AtkinsRéalis and Mott MacDonald, the top five features WSP, Aecom and Arup, despite Arup seeing its income drop by 11%.
Among the top 25, impressive growth in UK fee income was posted by Ridge and Partners (30%), Systra (27%), Turner & Townsend (20%) and WSP (19%) (see “Big risers” box below).
Elsewhere in the top 150, several firms made large jumps in the rankings, including Coventry-based multidisciplinary design consultant Exi Group (which rose 39 places to 63rd), Artelia Projects (up 26 places to 29th) and Vextrix management (up 19 places to 97th).
Big risers
Among large firms to post big percentage increases in UK fee income this year is multidisciplinary consultant Ridge and Partners, which boosted its figure by 30%. Senior partner Adrian O’Hickey said the firm has built a solid foundation where 85% of revenues come from repeat business. He said Ridge has also grown in sectors such as defence, science and data centres.
Also growing rapidly in the top 20 is French engineering group Systra, which increased its UK income by 27%. Mike Muldoon, the company’s business development director, said: “Performance in our core transport offering, across rail, mass transit and highways, remains strong. In addition to this, investment in our energy, water and environment offerings is supporting growth in these diversified markets.”
Turner & Townsend increased its income by 20% in the first full year of trading since its takeover of London-based cost management business Alinea. “The growth reflects a greater call for expertise across complex programmes, and success right across the business’s diverse areas of work,” said a spokesperson.
In terms of the rankings, the biggest jump was by Exi Group, which rose 39 places to 64th in the table. Founder Richard Kinnersley said securing repeat business has been the key to the firm’s growth.
French project and cost management business Artelia rose 26 places to 29th place, as a result of its acquisition of Ipswich-based Castons Consulting last year.
A mention should go to Vextrix, which jumped 19 places to 97th, and increased its UK fee income by 42%. “Securing key frameworks has significantly boosted rail, transport and infrastructure projects, where we’re recognised as experts. Our design team’s ongoing development and service expansion have also been crucial to our success,” said managing director Phillip Marsden.
Rund jumped 17 places to enter the top 100 in 94th place. Richard Mussell, its managing director, cited the surveyor’s work in housing as the key to its growth. “Our expertise in key sector growth areas such as build to rent, co-living and student housing has led to exceptional growth this year,” he said.
In terms of raw percentage terms, D2I Management had the largest rise, boosting its income by 280% and entering the top 150 in 149th place. The firm’s owner, Darren Talbot, said: “We have had a particularly good year working with a number of clients on some short-term pieces of work that have better rates than long-term work.” Talbot added that this may be a “blip” as the firm has now moved back to longer-term clients.
Meanwhile QAD Architects, which was ranked 148th, tripled its UK fee income from £257,000 to £785,000.
But what of the sector as a whole? This year average UK fee income among the top 150 increased by 11%. This is down from a 16% rise the year before. Simon Rawlinson, head of strategic research and insight at Arcadis, says this could in part be due to inflation coming down, meaning price increases have slowed.
But there is likely to be some real-terms growth there as well, he says. The lower growth could be “a sign that there’s some significant long-term opportunities, rather than being a reflection of immediate workload”.
Rawlinson points out that certain contractors are seeing hard times, indicating slowed construction activity in the short term. “I think it [the growth figure] is probably a reflection of how the long-term pipeline is evolving around energy transition and some of the big frameworks and potential infrastructure projects that may be delivered over the horizon.
“It illustrates that there is a certain resilience within the workload of the consulting sector, which is positive news.”
The short-term slowdown in construction activity may also be behind what appears to be increasing demand from clients for consultants to do more work for less income. A total of 41% of consultants in the survey said that clients were expecting more work for less income this year, compared with 33% last year.
Compared with the previous year, what best describes clients’ demands?
CPC Project Services’ Cleverly says the lower increase in overall annual fee income this year could be due to a “bit of an overlap” as the impacts of the previous economic slowdown find their way into this year’s results. He says these may include “interest rate rises, fiscal tightening, debt getting more expensive and a bit of a contraction and then hesitancy leading up to the election”.
But which sectors are behind the increase? Building asked the consultants to break their income down by sector. A total of 137 consultants answered this question this year (see table below), compared with 114 the previous year, so we have to exercise caution in comparing year-on-year. The figures do, however, suggest a big increase in retail (77%) and offices (42%), with a large fall in transport infrastructure (38%).
In the 2023/24 financial year, what was your UK fee income in the following sectors? (figures show average across respondents)
| Sector | 2024 | 2023 | Difference | Change | |
|---|---|---|---|---|---|
| Housing | £5,159,938 | £4,472,517 | £687,421 | 15% | |
| Retail | £1,482,563 | £833,999 | £648,564 | 78% | |
| Offices | £4,596,651 | £3,224,093 | £1,372,558 | 43% | |
| Health | £1,709,085 | £1,948,774 | -£239,689 | -12% | |
| Education | £2,175,800 | £2,596,476 | -£420,676 | -16% | |
| Other building | £6,301,993 | £5,638,062 | £663,931 | 12% | |
| Transport | £6,835,866 | £10,945,642 | -£4,109,776 | -38% | |
| Utilities | £5,588,674 | £6,054,359 | -£465,685 | -8% | |
| Other infrastucture | £3,255,136 | £5,483,434 | -£2,228,298 | -41% | |
Cleverly says: “We’ve definitely seen increased activity in retail; our clients have been acquiring retail parks.” He suspects this is partly due to increased demand as consumers have accumulated savings during the pandemic, but is also because clients are bringing “experience into retail”, meaning they are not just looking to build a retail park to a set formula.
“They are spicing that formula up now with pop-up offers, other types of amenities, and health and leisure services in and around the parks to make them more of a destination,” he says.
The drop in transport infrastructure fee income, Cleverly says, mirrors official output data and he believes it is connected with the lack of government spending headroom on big projects.
Rawlinson agrees the decline in transport spending is not surprising and says he would expect a corresponding increase in elements of energy transition. The drop in utilities work is probably because the volume work for the next water industry asset management plan (AMP) period “hasn’t really started yet”, he says.
A total of 23 consultants reported that their UK fee income dropped overall, with the five biggest losses all architecture practices. Rawlinson says this is consistent with a slowdown in construction markets, as architects tend to take their fee income in the latter stages of projects.
Economic optimism
While we can debate the extent to which the overall fee income figure and sector breakdowns are affected by lingering affects of the slowdown, there is much more positivity when looking forward.
When asked for their expectations on trading conditions for the next 12 months, 42% of survey respondents said they expect conditions to improve, up from 30% last year and just 13% in 2022. Conversely, just 9% this year said they expect conditions to worsen, down from 19% last year and 35% in 2022.
Nine in 10 consultants this year said they expect conditions to stabilise or improve in the next year.
What are your expectations regarding trading conditions over the next 12 months?
“This represents people feeling quantitatively different to how they did this time last year, so that’s good,” says Rawlinson.
“We don’t think things are to going to recover for contractors for a while, but at Arcadis we were content to say in our recent market view publication that we’d shifted into an upward economic cycle.”
Similarly, 40% of survey respondents said they were positive about the general economic outlook, compared with 27% last year and 10% in 2022.
A total of 6% were negative, up from 20% last year and 42% in 2022’s poll, which was conducted weeks after Russia’s full-blown invasion of Ukraine.
What is your view concerning the general economic outlook?
Cleverly says that part of this increase in confidence may have been “people wanting to feel more optimistic and energised about a new government, versus how they felt about the old government, where they had maybe felt that they’d run out of ideas and energy.”
He also considers there is a widespread feeling that we are reaching a new phase of the economic cycle where inflation is under control. The Consumer Price Index measure of inflation was certainly down considerably this year, scoring 2% in June (and was also 2% when the survey was conducted in late May), compared with double digits in the latter part of 2022.
When it comes to consultants’ own performance, 45% reported their margins increasing, up from 37% last year.
On average, in what direction are your margins moving?
On staffing, there was a six percentage point drop in firms saying they would increase their staffing over the next year (down from 86% last time to 80% this time). However, the percentage saying they were going to decrease staff was just 1% (compared with 2% last year).
Are you planning to increase, leave unchanged, or decrease staff over the next 12 months?
A total of 93% said they had laid off less than 5% of staff over the past 12 months, compared with 97% last time, while 92% have increased salaries.
Investment priorities
We once again asked the consultants whether they intended to increase, keep stable or decrease their spending in several key areas.
Net zero services again emerged as the area in which the highest proportion said they intended to invest, although this year’s score of 81% is down on last year’s 85%.
In second place was investment in digital technology, with 78% planning to increase spend (up from 70%). In the question, it was made clear that this category included artificial intelligence (AI) along with software and IT. Given that in a separate question 88% of respondents said AI was very important or important to the transformation of their business over the next 10 years (up from 75% last year), this increase in spend is perhaps not surprising.
These two top-priority areas for investment were followed by improving productivity (74%), skills (73%) and recruitment (60%). A smaller percentage this year said they were increasing recruitment (60% compared with 59%) and skills (73% compared with 74%).
Do you intend to increase, maintain or decrease spending on any of the following?
As Rawlinson notes, “It articulates a quite complicated dilemma within organisations: do they invest in growth, or in their future in terms of people?”
Once again, the lowest priority among consultants appears to be investing in physical assets, such as offices and hardware.
Just 30% said they were looking to increase spend in this area, down from 33% last year. This resonates with Cleverly, who says: “We explore how we can get the best use of our fixed overhead rather than looking to increase it.” However, he does point out that CPC Project Services would look to increase physical assets in “strategic areas”.
Biggest risks facing consultants
While consultants may be more optimistic about the future, there is certainly no shortage of risks. We asked the consultants to rank the biggest risks to their business, and then we added up the scores to come up with a list of issues of most concern.
Macroeconomic conditions again emerged as the top concern, followed closely by geopolitical events – both of these, as was pointed out by several firms, are of course beyond consultants’ control.
What do you see as the biggest risks facing your business?
| Risk | Rank 2024 | Rank 2023 |
|---|---|---|
| Macroeconomic conditions and their impact on markets in which the business operates | 1 | 1 |
| Geopolitical events including upcoming elections, international wars etc | 2 | 3 |
| Attracting, developing and retaining staff and skills | 3 | 2 |
| Government regulations, such as new obligations under the Building Safety Act | 4 | 5 |
| Climate change | 5 | 4 |
| Financial health of the business and its ability to access funding and maintain liquidity | 6 | 6 |
In its response, engineering consultancy Hoare Lea said: “The prevailing macroeconomic conditions are suppressing activity within the market, directly impacting client investment decisions and leading to delayed project starts and projects being stalled at planning stage.”
A spokesperson for multidisciplinary consultancy Baily Garner said: “Geopolitical and macroeconomic risks are very strongly linked and the greatest risk is escalation of wars and the impact that has on the country as a whole and our business.”
Skills was cited as the third-biggest area of concern, with many consultants seeing a shortage of skills as a potential brake on activity.
According to Andrew Reynolds, global chair and chief executive for the UK and Europe at RLB, “The biggest restrictor remains the availability of suitable skills resource in all skills, especially planning, surveying and project management disciplines.”
Government regulations, in particular the Building Safety Act, were cited by several consultants as a key risk.
A spokesperson for HKS Architects said: “The government regulatory changes, especially the new Building Safety Act, are not just updates but potential game-changers that will impact projects on the deliverables the teams will need to achieve in addition to already agreed packages.”
Others stressed that clients often struggle to fully understand the requirements. A spokesperson for engineering consultancy Troup Bywaters + Anders said: “Obligations under the Building Safety Act are not only challenging, but also impose restrictions on professional indemnity insurance which are difficulty for clients to understand.”
Climate change and access to finance were fifth and sixth in the list respectively.
What do we want from the next government?
Consultants, then, have acknowledged several major risks affecting their businesses. Presumably they are hoping the new Labour government can help alleviate some of these potential dangers.
We asked the consultants to rank the biggest priorities for Keir Starmer’s incoming administration in order to boost construction, and then scored them accordingly.
What should the priorities be for an incoming administration to boost the fortunes of the construction sector?
The number one priority for the Labour government, according to the consultants, should be public sector investment certainty, followed closely by reform of planning and infrastructure, then skills.
A spokesperson for structural engineering firm Whitby Wood said: “A commitment to a pipeline of public sector work hand in hand with planning reform will allow companies to grow and invest in upskilling the workforce as well as zero carbon technologies, both of which are essential to the future of construction.”
A spokesperson for Turner & Townsend said the top three choices (public sector investment, planning and skills) go “hand in hand”.
She said: “Investment and certainty of funding is key to growth and being able to plan major projects and programmes plus meet housing demands. However, those efforts risk coming to nothing unless we can build the skills and industry capacity we need to deliver investment at the scale and pace that the government is setting. Making the planning and approval process more efficient will drive activity in the sector.”
Sustainability and net zero was fourth in the list, followed by procurement and tax reform, in fifth and sixth places respectively.
Rawlinson says that the industry must be careful of “wishful thinking” about government investment, given the fiscal context. However, he points out that Labour has promised measures on each of the top four priorities outlined by our survey respondents.
It has promised multi-year spending settlements for councils and a fixed cycle of comprehensive spending reviews in a bid to give more certainty and visibility. The government has also published a consultation on planning reforms, including reintroducing mandatory local housing targets, and it has announced the launch of a new body called Skills England to provide strategic oversight of the post-16 skills system. It has pledged too that it will ensure the institutional framework for policy-making reflects its commitment to reach net zero.
“They are all major planks of government policy,” says Rawlinson.
The risk would become probably the reappearance of inflation. Because skills and capacity are the real problems that we have in the UK and we’re going to burn through them really quickly
Mark Cleverly, head of property and construction at CPC Project Services
Cleverly, however, shares a word of warning that even if we have an economic boom, it may not be plain sailing for the construction industry to deliver more.
He says: “The risk would become probably the reappearance of inflation. Because skills and capacity are the real problems that we have in the UK and we’re going to burn through them really quickly.”
This year’s Top 150 Consultants survey reveals firms are much more optimistic about their own businesses and the wider operating environment than they have been for several years. Whether in anticipation of a more stable political landscape, a more benign economy or both, more optimism is in the air.
But scratch the surface and the industry is still concerned about plenty of risks. In order to increase output, there are serious challenges that will need to be overcome around planning and regulations, skills shortages and investment certainty and stability.
If these risks materialise, they could quickly derail the Keir Starmer optimism train and next year’s Top 150 Consultants survey may not paint quite as sunny a picture.
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