SYDNEY – April 2025 – Green shoots may be emerging among certain segments of the building and construction sector, despite ongoing challenges and historically high insolvencies, according to new analysis from Equifax.
Although construction insolvencies are still tracking at 30% higher on a rolling twelve month basis, the rate of increase has been slowing in recent months. The emerging profitability of many construction businesses has benefitted from the recycling of their order books, with more recently priced projects helping offset lower-margin legacy engagements, which were impacted by inflationary pressures, resource constraints and supply chain disruptions.
As recent events have shown, larger businesses are not immune to financial distress; however, the pace of construction businesses employing more than 5 full time staff entering external administration slowed last year. Equifax data reveals more mid-to-large construction businesses have seen an improvement in credit quality, with a smaller proportion seeing rating downgrades to the more vulnerable category of ‘high to very high risk’. An improvement of key financial metrics for those companies generating revenues of more than $10 million supported some improvement or ratings stability for FY24, with early indications suggesting this trend is continuing for FY25.
Conversely, smaller businesses employing less than 5 full time staff continued to report a higher number of external administrations, lifting the overall construction business failure levels to record highs. Smaller companies are often thinly capitalised and don’t have the resilience, reserves, collateral or borrowing capacity to sustain operations when experiencing excessive project delays or during difficult trading conditions.
However, the level of credit risk or business resilience was also observed to vary by sector, with heavy and civil engineering constructors seeing relatively higher levels of credit quality on average. Nearly one third (32%) of these businesses were observed to have a credit rating upgrade last year, with approximately 3 rating upgrades for each rating downgrade.
While non-residential constructors had a comparatively lower level of credit quality, on average, nearly a quarter had a credit rating upgrade. Residential builders were observed to have the lowest level of credit quality, on average, across the various construction sectors, with only 14% receiving a credit rating upgrade. However, while early last year saw an elevated rate of rating downgrades across residential builders, this cohort is now seeing the highest level of ratings stability across all construction sectors.
Brad Walters, Head of Product and Rating Services at Equifax, said, “The latest credit rating insights across the construction industry suggests we may be turning the corner, pointing to a likely slowdown in insolvencies in the year ahead. This is undeniably positive and welcome news, especially considering the construction industry’s vital role in our economy and its essential contribution to meeting our housing supply targets and infrastructure needs.”
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