London building boom under threat from lack of contractors

Aaron Morby 8 years ago

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

Tide gets green light for UK’s tallest modular tower

Volumetric specialist to build 48-storey student skyscraper at Canary Wharf
12 hours ago

Demolition starts on half-built £48m Taylor Wimpey flats

Furious local residents blast house builder over "unbearable" noise
3 days ago

Civils contractor fined £600k after boy dies in drainage pipe

Workers find seven-year-old who suffocated on housing site
3 days ago

Plan for trio of towers at old Yorkshire Post site

Galliford Try advises on construction plan for Leeds student and build to rent towers
3 days ago

Insolvency to rival inflation as project cost threat

Inflationary pressures likely to peak this year before easing in 2023, but supply chain stress is growing.
3 days ago

B+K starts £300m Sheffield West Bar scheme

Funding deal triggers start on major mixed-use scheme
3 days ago

Willmott Dixon bags £44m Passivhaus leisure centre

Private builder prepares to start Staines-upon-Thames complex
3 days ago

Go-ahead for £160m Cambridge mixed-use scheme

Devonshire Gardens will consist of 70 private rental flats and 120,000 sq ft of offices
3 days ago

Construction buyers report first drop in output for 18 months

Civil engineering worst performing sector
3 days ago

Construction and infra margins hit 3.2% at Morgan Sindall

Contractor picking deals carefully as inflation continues to bite
4 days ago

Morrisroe Group revenue tops £200m

Pre-tax profit halves to £2.7m as cost inflation bites
4 days ago

Kier to start new £400m ‘smart’ prison this autumn

At least 50 ex-offenders will help build new HMP Full Sutton
4 days ago

Former P&R Morson staff to launch legal claim

Former staff of failed Midlands M&E specialist consult with lawyers following administration
4 days ago

Eight firms win big north west MMC housing deal

JV North consortium plans to build 4,000 homes by 2026
4 days ago

Balfour to replace Ringway Jacobs on £176m Bucks highways deal

Balfour to start new eight-year maintenance contract in 2023
4 days ago

O’Keefe suppliers owed £13m despite Byrne rescue

Unsecured creditors to get less than 2p in the pound for their debts
5 days ago

Taylor Wimpey staff to get £1,000 towards fuel bills

All staff earning below £70,000 will receive a one-off payment
5 days ago

Equans bags Birmingham 300 council homes retrofit pilot

Council homes retrofit trial will test way for ambitious 60,000 homes decarbonisation plan
5 days ago

Van Elle returns to profit after £125m record revenue

Piling contractor restores dividend after work rebound delivers £3.6m profit
5 days ago

Race for places on £2bn housing decarbonising deal

South west central procurement body starts race for places
5 days ago

Kier signs off £36m Liverpool school job

Work to start on new Deyes High School in Maghull
5 days ago

WSP buys property and infra businesses from Capita

Consultant pays £60m for GL Hearn and Capita Real Estate and Infrastructure
5 days ago

Leeds unitised facade contractor crashes

Jobs axed as Glasshus Facades falls into administration
6 days ago

Morgan Sindall wins £61m Abergavenny super school job

Existing King Henry VIII High School will be replaced by a 1,900 place all-through school
6 days ago

Select buys world’s biggest battery drilling rig

80% of Select's fleet now emission-free equipment
6 days ago

McLaughlin & Harvey lands £55m aircraft hangar

Construction to start within weeks at Farnborough Airport
6 days ago

FP McCann makes first cement-free precast pipes

Earth Friendly Concrete used in precast factory to make low carbon construction products
6 days ago

Public buildings to get another £635m for green heat upgrades

Latest funding round to pay for major low carbon heating installations
6 days ago

£3bn Sellafield infrastructure race set to start

Contest to start in October for four partners in infrastructure delivery shake-up
7 days ago

Galliford Try starts revolutionary first secure school

£26m contract awarded for Medway Secure Training Unit transformation into a secure school
7 days ago

Contractor services