Projects delayed as London build costs skyrocket

Aaron Morby 2 years ago
Share

Nervous clients are delaying project starts amid soaring construction and land costs in London.

City of London skyline after major projects with planning are built

According to new research by cost consultant Arcadis concern about the viability of schemes in the overheating construction market is starting to hit workloads.

Soaring costs have made the capital the most expensive city for building in Europe and the second most expensive city worldwide.

The cost of building an international 5-star hotel is now 20% higher in London than in Paris, and 50% higher than in Dubai, estimates the latest Arcadis International Construction Costs Index.

Arcadis warns that a limited pool of specialists and opportunism among contractors has created unpredictable patterns of high inflation, making accurate prediction of construction prices very difficult.

It also reports that supply chain insolvencies are on the rise. And clients are getting the jitters as cash-flow failures, problem projects and lack of control over the supply chain are becoming ever more prevalent issues.

Simon Light, Arcadis UK Client Development Director, said that these factors have conspired to reduce the certainty of delivery, just as the development industry has being asked to pay an additional premium to build.

He said: “In London, the synchronised recovery is losing momentum.

“With inflated construction costs and high land values threatening the viability of commercial and residential development, workloads look to be losing steam even before the capital’s infrastructure boom really takes flight.

“Delayed investment decisions are reducing actual workload and we are seeing early signs of a return to reason in procurement”

Light added: “There is now much more focus on agreeing prices prior to starting on site, ensuring no loss of value should current construction volumes be maintained.

“We expect to see the rate of inflation fall to 4-5% in London for 2016 and for a real opportunity to ‘reset the dial’ on projects coming forward in 2016 and 2017.” 

Yet despite rapidly growing costs, Arcadis believes the London market remains attractive to international investors, with the strength of the US dollar in particular putting US investors in a positive position.

As prime areas of the city are no longer as profitable to build in, demand is rippling outwards to sub-prime areas in London, and other cities like Birmingham and Manchester, where the potential for long-term development value is greater.

Arcadis building cost

Across the globe, financial hubs New York and Hong Kong join London as the costliest locations for construction in the world, with cost premiums in these cities ranging from 40% to 60% in comparison with other European counterparts.

Middle Eastern commercial centres meanwhile, remain around the mid-point of the rankings, with the likes of Doha (12th) and Dubai (19th) continuing to benefit from low-cost labour and energy.

Latest news

McLaren lands new HQ for consultant Dar Group

John F Hunt to start demolition work in August to make way for new nine-storey scheme
3 hours ago

On-site training boost to ease skills shortages

New £22m Construction Skills Fund now open for applications
2 mins ago

Chandler promoted to Wates board

Wates MD, Paul Chandler, ushers in nearly £3bn of new business
35 mins ago

Legal firm moves into cost consultancy

Blake Morgan hires former Aecom director to head project management and cost consultancy
1 hour ago

Fire destroys Kier restoration of Glasgow School of Art

Second major blaze in four years reduces £35m of repair work to ashes
2 days ago

Race starts to build £20m Basildon cinema complex

Basildon town centre’s planned East Square cinema complex up for grabs
6 hours ago

One in four MPs now back retention reform

Aldous Bill second reading delayed to October
6 hours ago

Late payment delays hit 42 days for subcontractors

Firms waiting longer for money despite raft of initiatives to speed up payment
6 hours ago

Mace wins £90m Tunbridge Wells civic centre complex

Mace to agree final design and build price in April 2019 on theatre and civic offices
16 hours ago

Caledonian wins £27m haul of MoD orders

Modular specialist ramps up production for MoD Lyneham and Worthy Down projects
6 hours ago

Forrest bags fifth X1 scheme at Chatham Docks

£58m Chatham Waters build to rent blocks get underway
7 hours ago

Mace slims down construction divisions

Former Carillion operations boss to head Mace major projects arm
3 days ago

Subcontractors write-off £2.8bn in bad debts every year

Average firm hit by £16,000 annually in unpaid bills
3 days ago

Pochin’s hires ex-Balfour boss to head construction arm

Jon Adams appointed managing director of Pochin Construction
3 days ago

Wates scoops £150m Birmingham office scheme

Work to start on phase one of Axis Square city centre scheme in February
4 days ago

Faulty tower scaffold led to fatal roof fall

Court hears how a catalogue of mistakes led to death plunge
3 days ago

UCL East starts race for £90m student blocks

Bidding starts for Queen Elizabeth Olympic Park student accommodation
4 days ago

Firefighters and sprinklers contain tower block blaze

Fire breaks out in London 20-storey block of flats on Grenfell anniversary
4 days ago

Heating engineer wins landmark workers rights battle

Pimlico Plumbers boss warns industry faces "tsunami" of self-employed claims
5 days ago

Network Rail ordered to spend an extra £1bn on renewals

Rail watchdog wants more spent replacing worn out rails and smoother spend over CP6
5 days ago

Site cleaners and chefs will no longer need skills cards

CSCS to phase out visitor cards for non construction staff
4 days ago

Costain moving to bigger construction technology centre

Contractor continues to ramp up investment in tech innovations
4 days ago

Green light for £150m Crawley mixed-use regeneration

Tenders due back this month for Crawley town centre rebuild
4 days ago

Wates on the hunt for South West subcontractors

Meet the Buyer event next month: Register now
4 days ago

Problem job sees Multiplex profit slump to £4.4m

Order book rises to £4.2bn on back of major tower projects
5 days ago

Boost your online presence – join the new Enquirer Directory

New site for suppliers and buyers will showcase their products, services and latest stories
2 months ago

Interserve sees shareholder revolt over chief’s pay

More than 17% of shareholders vote against executive remuneration report
5 days ago

Gatwick ramps up five-year spend to £1.1bn

Total investment since airport changed hands rises to £3.14bn
6 days ago

Betting Spy: Spain to reign at World Cup

Spain to edge out Brazil in final while England can have a bold run to the quarter finals
6 days ago

BAM to start main build on £50m Cardiff student centre

Construction to start this year on Centre for Student Life
5 days ago

Contractor services