Aengevelt: Shortage of craftsmen growing risk for property developers.
According to analyses by DIP partner Aengevelt Immobilien, the shortage of skilled workers in the construction trade also contributes to the increased risk of insolvency for property developers and project developers. In view of the already more difficult environment, the risk of tightly calculated scheduling and liquidity planning collapsing is also increased by the fact that craft businesses are triggering considerable extensions of construction time or unplanned cost increases due to ongoing staff shortages. However, Aengevelt also sees possible solutions.
In the past three years, 1,230 property developers in Germany have filed for insolvency – this corresponds to 25% of the 4,972 companies currently still active. The trend is still rising. The closure of the Signa Group’s Elbtower construction site is only the symbolic tip of the iceberg. From the circles of the law firms involved, it can be heard that the reasons for the marked increase are manifold: the interest rate level that has already risen in 2022, insufficient or too tightly calculated liquidity planning, increasing financing problems due to lower book values, but increasingly also construction time extensions due to a shortage of craftsmen.
According to a recent study by the German Economic Institute (IW), there is a shortage of more than 41,000 skilled workers in the “Preparatory construction site work, construction installation and other finishing trade” sector. This makes the construction industry the sector with the second largest shortage of skilled workers in Germany, just after healthcare. There is a shortage of 18,000 skilled workers in construction electrics, another 12,000 in sanitary, heating and air conditioning technology, 7,000 in metal construction, 3,700 in wood, furniture and interior construction, 3,000 in roofing and 1,600 in carpentry.
Due to the shortage of staff, craft businesses often have to reject orders, have far too long queues or can no longer meet promised deadlines. In some regions, the waiting time for an electrician or roofer assignment is now even more than a year. For property developers, this means that they often have to pay prices that are far too high to find a craft business at all, that they have to resort to companies from other regions or abroad, which may result in quality and scheduling problems, or that there are sometimes considerable extensions of the construction period, which drive up pre- and interim financing costs and thus also affect sales.
With liquidity planning already extremely tense, such problems can be the famous straw that breaks the camel’s back and triggers insolvency. The industry-typical interdependence of property companies often results in domino effects. If a builder becomes insolvent, executing companies can usually terminate the contract, leave the construction site and thus make timely rescue efforts impossible or even more difficult.
The real estate house Aengevelt draws the conclusion from the structurally increased risk of insolvency that property developers need even more comprehensive scheduling and liquidity planning due to the crisis, which includes a rolling time horizon of at least 24 months. This planning, which serves the unsubstitutable early detection of crises, should also take into account the availability of the resource “craftsmen’s deployment” and, as a precautionary measure, include another company as a back-up for each trade.
Dr. Wulff Aengevelt, Managing Partner of DIP partner Aengevelt Immobilien: “The economic environment has become difficult enough for property developers due to the global crises, the development of the interest rate landscape and real estate prices. Now there is also the shortage of skilled workers, which has been predicted for years, and which is hitting the construction trade particularly hard. Forward-looking planning with crisis-adequate deadline and liquidity buffers can be a measure against the risk of insolvency. Large portfolio holders are already taking precautions by increasingly setting up their own craft businesses in order to become more independent of the market on their own responsibility. However, this solution would be much more difficult for developers and developers to implement due to the higher volatility of their business.”
