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04/08/2010

Real estate and construction had the toughest journey through the recession

Shaken to their foundations - real estate and construction had the toughest journey through the recession

Exclusive research by R3, the insolvency body, has tracked each sector through the recession and found the largest number of insolvencies were in the real estate, renting and business activities sector. With over 12,000 (12,050) insolvencies, this is nearly double that of the second most affected sector - construction, at 7,184. Wholesale and retail are third with 6,077 and manufacturing fourth with 4,664 – all measured from the second quarter 2008 to the end of the fourth quarter 2009.

R3’s President Steven Law commented:
“The decline in real estate massively outstrips that in any other sector. Clearly there was an oversupply when the recession took hold and, as people and businesses became less inclined to move, development projects could not be sold on.

“The real estate industry was the first key sector to be hit by the recession, and had its worst time one quarter before (Q4 2008) all the other main sectors. It is important to see these figures in context - with over 1 million enterprises, compared to just over 500,000 in the wholesale and retail industry, real estate is the largest sector, a factor in pushing insolvency numbers higher.”

When insolvencies are viewed as a proportion of the total number of enterprises in each industry:

  • Hotels and restaurants top the list with an insolvency rate of 1.7%
  • Manufacturing is second at 1.6%
  • Real estate comes in fifth at 1.1%

Steven Law concluded:
“The findings indicate that the pain has been evenly spread, looking at these percentages. Hotels and restaurants have had the toughest time as a sector with close to two in every hundred becoming insolvent during the recession, due to their dependence on consumer spend. The manufacturing industry has also been hit very hard, but traditionally is one of the first sectors to recover.”

“As a result of low interest rates and HMRC’s Time To Pay scheme, corporate insolvency numbers have started to come down this year. However, it will take until the end of 2011 before we know if there is an ‘insolvency lag’ still to work its way through. This ‘lag’ has been a typical feature of past recessions when insolvencies rise during a recovery as creditors stand to achieve greater returns and weakened businesses have used up their reserves to stay afloat.”


Methodology note: R3 has tracked the number of insolvencies throughout the recession in each of
the main industries in England and Wales. The figures are calculated by adding together Insolvency Service figures for the numbers of administrations, CVLs, compulsory liquidations, CVAs and receiverships in each industry from the second quarter of 2008, through to the end of 2009 (the period of recession). During this time, some companies may have moved from one insolvency procedure to
another (e.g. from a receivership into liquidation) so there may be instances where a company is counted twice - we believe these instances are very low in number and unlikely to affect overall trends.


R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.