London building boom under threat from lack of contractors

Aaron Morby 9 years ago
Share

Developers in London are starting to dig deep and pay premiums to contractors in a race to get schemes built while demand remains high.

This rush to market has triggered sharp construction price inflation as nervous developers race to get building work underway with the best project delivery teams.

A report by cost consultant E C Harris into the Capital’s prime residential market warns many schemes in the pipeline will hit a bottleneck due to shortage of contractors able to deliver the required quality of work.

Mark Farmer, EC Harris Head of Residential, said: “The ability of the major players to source multiple delivery teams, as well as their intended Tier 2 fitting out supply chain, is the biggest immediate threat to project delivery.

“We are starting to observe real problems in the construction process.

“There is simply not the capacity out there to meet demand and many projects will undoubtedly fall by the wayside or experience delivery difficulties due to sheer lack of resources.

“Many developers and investors, when in a position to do so, are therefore looking to jump the queue and are paying premiums for construction so they can deliver on promises they have already made to their purchasers.”

The number of luxury homes currently being planned or under construction in London hit a record high this year, with around £60bn of properties currently due to be delivered over the next decade, a 20% increase on 2013.

In volume terms this equates to a record 25,000 homes.

The report warns that there are just 20 tier one contractors and even fewer competent fit-out specialists with the right capability in the market.

Farmer said: “What is of more concern is the tier 2 trade contractor bottleneck that is evident, given the prospective volume in the pipeline.

“At the moment, the peak of potential development activity in 2017 could be double what may be possible for the competent and qualified residential construction market to deliver at current capacity.”

Capacity overload

Resi demand e c harris

The bottleneck

Resi supply bottleneck

The report warns that many schemes may need to be delivered later to avoid this bottleneck, or will be forced to use inappropriate supply chains.

It states: “These schemes also face the risks of tender price inflation and ‘cover pricing’ as trade contractors pick and choose which projects to work on.”

The report warns that main contractors are struggling to get fitting out trades secured because of a lack of willingness by suppliers to fix prices early and lack of detailed design on which to base a final price without excessive risk transfer or refusal to accept that risk.

The authors warn: “This apparent Tier 2 supply chain capacity ceiling is potentially being suppressed as an issue on many projects as fitting out procurement is being deferred until after Tier 1 contractors are appointed or shell and core works have been procured.”

 

Latest news

Police ban mobile cranes from roads over Easter

Plant hire bosses livid as forces across the country extend abnormal load embargoes
5 hours ago

Director jailed for exposing workers to asbestos

Ten tonnes of asbestos insulating board stripped out by unqualified workers
9 hours ago

Site labour rates start rising again

Industry's biggest payroll firm says "it feels like things could be turning round"
14 hours ago

Council finds extra £33m for Buckinghamshire link road

South East Aylesbury Link Road costs soar by nearly 30% to £147m
13 hours ago

Quartet win £490m North West & Central railway works deal

Skanska, Kier, Octavius Infrastructure and Story Contracting bag major projects deal
14 hours ago

Unite Students plans first major mixed-use scheme

Developer's first mixed BTR and PBSA project to be built in Edinburgh
1 day ago

Galliford Try names new finance director

Rentokil's Kris Hampson joins contractor to replace Andrew Duxbury
15 hours ago

Council boss hits out at bat threat to £274m road job

Natural England could scupper scheme due to be built by Ferrovial
15 hours ago

Hydrogen-fuelled diggers to be allowed onto highways

Government to raise barrier to widespread use of hydrogen fuelled plant in construction
1 day ago

Plans in for £118m Government hub in Darlington

Work pencilled to start later this year on new home for 1,450 civil servants
1 day ago

New contractor highlights Henry Construction jobs on website

New firm lists jobs by failed contractor to show its experience
2 days ago

Contractors line up for £2.6bn Anglian Water AMP8 deal

Eight big names land places on pioneering @one Alliance
2 days ago

McAleer & Rushe bags first major later living project

Work to start this month on 167-flat Royal Tunbridge Wells project
2 days ago

Kier starts first all-electric prison houseblock job in Kent

Next-generation fully electric T60 prison houseblock to be built at HMP Elmley
2 days ago

Keepmoat sees better times ahead in housing market

Profits dip in 2023 despite construction of record number of new homes
2 days ago

Vistry signs partnership deals for 1,900 mixed tenure homes

West Sussex former airfield and Newmarket sites to break ground
2 days ago

Turnover at Wates tops £2bn for first time

Construction division exceeds £1bn turnover as average contract value hits record high of £48.3m
3 days ago

L&G looks to sell Cala Homes in exit from house building

Insurance giant reported to be preparing to offload 3,000 homes-a-year developer
3 days ago

Multiplex profit almost trebles as margin hits 5.5%

Revenue jumps 20% to £675m as big London scheme complete
3 days ago

TopHat puts plans to open huge Corby factory on hold

Advanced manufacturing facility was due to employ 1,000 people
3 days ago

Laing O’Rourke lands Calderdale hospital job

Enabling works to start by the end of this year at West Yorkshire site
3 days ago

Go-ahead for £475m Sunderland film and TV studios

Work to start this year on first phase Corwn Work studios
3 days ago

Willmott Dixon set for £20m Stockport Community Hub

Planning decision expected in June on Marple leisure and health clinic project
3 days ago

Police hunt for blundering dumper truck thief

Raider drove into a fence before getting stuck on a bank
3 days ago

Beattie Passive files administration notice

Passivhaus pioneer has been in business for more than ten years
4 days ago

McAlpine set for £50m space and tech centre

Northumbria Uni sign pre-con deal for new satellite research hub
4 days ago

VolkerFitzpatrick seals £34m Kent road viaduct

Work to start next year on Sturry Link Road near Canterbury
4 days ago

Eight win £600m Scottish civil engineering framework

Balfour, Farrans, Graham and Morgan Sindall win major works lot
4 days ago

Site engineer crushed to death by excavator

22-year-old victim died just months after graduating from university
5 days ago

NG Bailey fined £135,000 after hospital site death

Worker died after striking overhead beam while navigating a mobile elevating work platform
6 days ago

Contractor services