Projects delayed as London build costs skyrocket

Aaron Morby 6 months ago
Share

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

Sinkhole closes busy stretch of A1

Contractors pumping huge hole with concrete in bid to reopen route
8 hours ago

Lendlease to start £275m Hammersmith scheme

Construction to start next month on major office project
3 days ago

Contractors call for calm as Brexit victory spooks markets

Construction fears over costs, skills and investment as house builder shares crash
3 days ago

Cameron resigns as exit vote sends markets crashing

New Prime Minister to be elected by October
3 days ago

Shepherd Group suffers £74m hit from sold building arm

Strong profits at remaining Portakabin business help to cut group loss to £28m
3 days ago

Bidding set to start on £2bn East London cultural quarter

London Legacy Development Corporation set to procure shell and core work
3 days ago

Building worker critical after being crushed by JCB

Digger at Hebburn housing site believed to have reversed into worker
3 days ago

Plant test cheats website dodges closure threat

CITB chiefs battling to close down site undermining tests for machinery drivers
4 days ago

Green light for £18m Midland Metro extension

Preparatory utility diversion works to start immediately
4 days ago

Hill wins approval for £100m east London housing scheme

Work to start on Walthamstow triple towers this autumn
4 days ago

Construction workers win inflation busting pay rise

Deal agreed but unions warn pay agreement is "no longer fit for purpose"
4 days ago

Betting Spy: Roy’s luck set to run out against France

Quarter Finals could be our Waterloo while Croatia are an attractive price to see off Portugal
4 days ago

Costain to use more drones to make sites safer

Unmanned aerial vehicles can take on hazardous tasks
4 days ago

Bowmer & Kirkland profit jumps by almost half

Derbyshire private builder lifts profit to nearly £40m
4 days ago

Plans for £250m Liverpool resi towers trio

Liverpool developer Elliot plans cluster of 34-storey towers
4 days ago

Specialist wins low road tender court hearing

Judge rules against public client who rejected "abnormally low" bid from FP McCann and Balfour Beatty
5 days ago

Yorkshire plumbing contractor sinks

More than 100 jobs cut after firm fails to reach agreement with HMRC over tax arrears
5 days ago

Bid race starts for £20m Luton science block

University of Bedfordshire will appoint a contractor in September
4 days ago

Wates wants to meet local suppliers

Meet the Buyer event for local firms to be held on the WIrral: Register now
5 days ago

“Pop up” rail depot sends aggies to North West sites

Temporary plant saves thousands of HGV journeys across region
4 days ago

Morgan Sindall reopens Kent precast plant

Plant remobilises after big order for Tube Northern Line Extension tunnel extension rings
5 days ago

Wolverhampton Uni plans to invite bids for £20m project

Construction of School of Architecture and Built Environment to start in March
5 days ago

Willmott Dixon profits plunge 39%

Willmott Dixon expects residential business to drive profit growth in years ahead
5 days ago

Brexit could raise construction costs by 15%

Galliard Homes fears huge increases in materials and labour prices
5 days ago

Yobs hurl rocks from Dover cliffs at Costain workers

Rocks missed site workers by inches on railway rebuild job
5 days ago

BAM Nuttall bounces back into the black

Contractor turns an £18m profit after £18m loss in 2014
5 days ago

£100m Bristol Parkway office block approved

New HQ building proposal gets green light
5 days ago

National M&E contractor EIC in administration

More than 1,000 workers hit by collapse
6 days ago

Plans in for second New Bailey office in Salford

Work expected to start early next year on next phase
6 days ago

Mace gets green light for Oxford shopping centre

Mace aims to start on West Way Place site early next year
6 days ago