Robust demand ongoing, but margins of builders remain under pressure
In 2020, Belgian construction output contracted 4.7%. In Q1 of 2021, construction activity was still impacted by lower order volumes and project delays, but in Q2 residential and infrastructure construction activity have started to rebound. With the economic recovery gaining momentum, construction output is expected to increase by almost 7% this year. Business opportunities for the renovation segment remain good, in particular for energy-efficient building renovation (heating, ventilation, isolation and renewable energy).
The Belgian construction sector remains highly fragmented, and consolidation in the market is ongoing. Despite increased demand and full order books, profit margins remain low and under pressure, and the bargaining power of smaller subcontractors and suppliers is very limited. Belgian construction companies operate in a very competitive environment (in particular in the public tendering business), and are facing higher costs for commodities and labour, as well as limited availability of building sites. Currently supply chain disruptions are a major problem, with eight out of ten construction businesses reporting issues with material supplies.
The indebtedness of most businesses is high, and working capital requirements have increased due to the rebound in demand. Payments in the construction industry take about 95 days on average, and payment behavior has been good over the past two years. However, it is expected that the number of payment delays and business insolvencies will increase in Q4 of 2021 and into 2022, as high input costs (mainly for materials, energy, wages) remain a serious issue for the time being.
Additionally, government support measures are about to expire, and some construction businesses could experience difficulties settling their bank debts after grace periods for payment plans end. While business failures could increase 10% in the coming six months, this would be from a low level in 2020 and early 2021, when stimulus measures and bankruptcy moratoriums resulted in lower insolvencies.