Leading players in the UK timber frame sector are almost unanimous that 2012 was another tough year thanks to increased competition creating an ever-tightening stranglehold on margins. However, some also argued that signs of optimism were more apparent in the latter months – even though expectations are that, overall, 2013 will be much the same.

Some of this optimism comes from the latest study prepared by Timbertrends for the UK Timber Frame Association (UKTFA). It revealed that timber frame’s UK market share returned to growth in 2011, rising around one percentage point to 22.8% – equivalent to 31,700 units. And there is a strong belief that market share could climb at least two more percentage points over the next couple of years, giving timber frame nearly a quarter of all UK newbuild housing in 2014. "I’d be disappointed if we didn’t achieve this," a contact told TTJ.

Timber frame suppliers’ views vary according to their customer base. One leading player highlighted an increase in invitations to quote, particularly from the social housing sector. But while 2012 was a "pretty steady" year in which "we continued to be profitable", he stressed that, overall, the market remains "very hard" and little positive movement can be expected over the next two years.

Social housing suffers
The consensus, however, is that social housing is suffering more than most; one contact said this market – an important one given its almost 60% timber frame penetration – has "plummeted". Social housing experienced a "difficult time" in 2012 and more of the same can be expected in 2013, it was widely predicted.

There has been some growth in the commercial sector and the self-build market was described as "holding up", with one company predicting a 15% increase in its selfbuild turnover this year following a relatively static 2012. However, no real change in housing – both private and affordable – is expected over the next year.

Several contacts identified more positive developments with regard to schools after a period "in the doldrums", with many project managers now asking for performance specifications for running and whole life costs. "Some more money has been released and it’s coming to the surface now," a contact said.

Although there was no major pressure from timber prices last year, several contacts expect to see upward movement by the second quarter. At the same time, there were no substantial timber frame price improvements; indeed, some say prices have tightened under the pressure of increased competition. "The challenge we face is ensuring that customers are comparing apples with apples and fully understand all the elements priced for a project versus a competitor price," one contact noted.

Margin protection was an abiding concern for the timber frame sector throughout 2012. "It’s a very competitive market with too few contracts for the number of manufacturers," one contact said. "Some manufacturers continue to submit silly prices, which means they need to go for extras later. It’s not really a transparent or helpful way to do business." Another agreed that "there is still too much capacity for the jobs available", adding that the result in certain regions of the UK was a drop in average unit values last year.

The continuing oversupply has meant it has been harder to win business, another contact said. The response from many companies has been leaner quotes financed by cost savings elsewhere. One company conceded: "We’ve passed on the benefit from salary caps and redundancies in our tenders."

For timber frame manufacturers "costs are absolutely as low as they can go", TTJ was told.

"The concern is that the level of some price-cutting is not sustainable and is damaging in the longer term," one contact said. "While some companies may use low entry pricing to win business and to contribute to a positive cash flow, it gives a false impression of true costs. It also creates prolonged tender periods as customers aim to get their preferred suppliers down to the lowest prices quoted by others."

Margin pressures have convinced some producers to exit the sector: Howarth Timber Engineering has halted operations at its timber frame factory in Bury St Edmunds, not least because of a poor social housing market, limited success with diversification into the retail sector and unviable margins.

Despite timber frame gaining market share, there is still a strong sense that promotion of its benefits remains a work in progress. "We need to keep banging the drum to get people to understand the Fabric First message," said one contact. There was still "a long way to go with this" even though "timber frame is more in the mindset than it used to be", he added.

Another supplier said: "A key factor for manufacturers working in England is the lack of knowledge of the Building Regulations and how timber frame can deliver on them. People still don’t understand timber frame and keep looking for masonry solutions." At the same time, however, he said that legislation will ultimately force people to turn to timber frame.

Another agreed: "As legislation and changes to Part L come, there will be benefits for the timber frame industry. In addition, housing sector growth is expected from 2014 and the speed of build that timber frame offers can be a USP to developers looking for quicker return on investment."

This tallies with the Timbertrends report, which suggests the sector will benefit from measures to boost building efficiency and sustainability, with timber frame particularly suited to offsite construction. It is also expected to benefit from the UKTFA’s Site Safe scheme to improve timber frame construction site fire and general safety, and its Fabric First campaign, highlighting timber frame’s ability to achieve energy efficiency without renewables.

Lack of finance
Looking to the more immediate future, however, there is concern that scope for a significant improvement in market conditions remains limited – particularly as no major change in project finance or mortgage availability is apparent. "This will continue to put pressure on both customers and suppliers as competition increases for the projects available for tender," TTJ was told. "Reductions in government finance have impacted the affordable housing sector while the ongoing lack of mortgages has resulted in private developers building to order. In the short term, we don’t expect this to change."

"Margins are still low and customers are still buying on price – and I don’t think 2013 will be any different," another contact said. He is also concerned that CE marking requirements coming into force on July 1 may add yet more product cost for timber frame producers.