Projects delayed as London build costs skyrocket

Aaron Morby 10 months ago

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

London skyline
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

GRAHAM lands £150m Barnet major works deal

Leisure centre and school sites kick-off five-year partnership
2 days ago

Manchester 52-floor skyscraper approved

St John's Place tower at former Granada Studios site gets green light
3 days ago

Lendlease renews site access deal with HRS

Latest monitoring technology to be used at all contractor's sites
2 days ago

Michelmersh calls end to brick price rises

Increased competition sees prices remain flat
3 days ago

Pensioner killed at poorly managed roadworks

Tarmac hit with £1.3m safety fine
3 days ago

Cleveland Bridge recruits large buildings team

Steelwork contractor set sights on large building market
2 days ago

Murphy signs contract for £25m Blackpool outfall

Work to start on UK's longest and largest diameter outfall in March
3 days ago

Construction site gas leak causes chaos at King’s Cross

200 workers evacuated from North London site
3 days ago

£28m Dudley rail centre gets green light

Very Light Rail innovation centre and test-bed track approved
3 days ago

Wates confirms Paul Chandler as new construction boss

Former Skanska chief to take up the reins in January
3 days ago

Betting Spy: Contractors on a roll at awards night

Enquirer awards after party was a long night while favourites can land a 3/1 treble
3 days ago

£20m road schemes backed for 3,300 south west homes

Quartet of road improvements will unlock 3,300 new homes
3 days ago

Barratt boss arrested in contracts probe

London MD Alastair Baird suspended following major investigation
4 days ago

Laing O’Rourke to start St James Centre £1bn revamp

Demolition of old St James shopping centre in Edinburgh to take 18 months
4 days ago

Link Group names £280m Scottish new build partners

Keepmoat, Cruden, Graham and Esh secure places on central belt framewok
3 days ago

Dormant Scottish Tesco sites get £100m boost

London & Scottish Developments to start construction on ten sites
4 days ago

Civils firms slash carbon emissions in half over six years

Laing O'Rourke, Morgan Sindall and Carillion lead the low CO2 way in infrastructure
4 days ago

Plan unveiled for £48m resi tower in Liverpool

Latest 30-storey build-to-rent tower at Liverpool Waters
4 days ago

Clugston green light for £60m Sheffield IKEA

Project is the largest retail win in the region for Scunthorpe contractor
4 days ago

Travis Perkins to close over 30 branches

Builders' merchant in profit warning to the city
4 days ago

Mace tops September contracts league with London win

£450m One Crown Place project in Shoreditch lifts contractor
5 days ago

Costain tops best-paid Network Rail supplier rankings

Network Rail spending with Costain soars 75% to £377m
5 days ago

CH2M boss Roy Hill to lead HS2 construction

Consultant boss steps in while search continues to replace Simon Kirby
5 days ago

Search starts for construction’s best photographer

Enter your best pics now for Art of Building competition
5 days ago

Top Ten winners celebrate construction success

Industry enjoys top night out at inaugural Construction Enquirer awards
5 days ago

Bidding to start for £80m Nottingham shopping centre revamp

£80m Broadmarsh shopping centre expansion comes out to bid
5 days ago

Bouygues UK drops Thomas Vale brand

Dozen staff laid off as Midlands offices consolidated into new Birmingham base
5 days ago

Benniman bags first phase of £120m business park

Main construction to start this month on 90 acre Worcester site
5 days ago

Galliford Try confirmed for £68m Newcastle student village

Construction due due start shortly on Newcastle Uni student village
5 days ago

Balfour warns exodus of EU workers will hit HS2 and Hinkley

Contractor wants clarification from Government over post Brexit labour market
6 days ago