Research entitled Building Trends just published by one of the UK’s leading property consultancies – Bidwells – underlines the increasing scale of risk for clients in terms of construction procurement and the escalating challenge to have their projects completed on-time and on-budget.
Building Trends shows that Cambridge is experiencing high demand, limited supply and robust pricing for office, industrial and retail property. With a buoyant local economy, rising employment and falling availability, the rental growth prospects for Cambridge are stronger than ever. Office and laboratory availability are at their lowest levels since 2007 and with the city recording a ten-year peak in industrial take-up last year, the development and investment prospects for the city remain excellent.
Included in the research is a Contractor Survey carried out by Bidwells which confirms the rapidly changing position the construction industry is experiencing. The Survey was conducted among a significant number of major contractors across East Anglia, Central England and Western England to assess the health of the sector, current trading volumes and prospects for 2014/15.
Almost 100% of respondents reported an increase in development and construction activity with new business opportunities of between three and eight per month during 2013, rising to ten per month in the first quarter of 2014. Over 50% of contractors expect new opportunities to rise further over the next two years.
After five years of contraction and headcount reduction, there has been a rapid turnaround in recruitment with 80% of respondents reporting active recruitment for on-site roles and 40% recruiting for pre-construction and estimating positions. All replies confirmed an increase in direct labour costs.
This, together with a shortage of materials, bricks, blocks and timber, will mean that construction costs will increase and there will also be a shortage of firms with the headcount resources to participate in tenders and carry out the work.
Richard Pilsworth, Partner and Head of Building Consultancy at Bidwells said: “It seems we have an impending crisis in the construction industry, which is exceedingly worrying for property developers who will have to take on considerable extra risk to ensure their projects are carried out to the standard required.
“Increasing labour costs as a result of contractors having to recruit to ensure they can deliver on their contracts and price hikes in bricks, blocks and timber will have a major effect and these cost escalations will inevitably have a direct impact on clients’ own budgets and commissions.
“Our research shows that only around 50% of projects are currently being completed on budget at the contractor procurement stage. Clients will need to be wary of contractor commitments to completing on-time and on-budget as there may well be hidden contract clauses which refer to ‘redefining because of market conditions and unforeseen circumstances’.
“At Bidwells we have extensive knowledge of the current situation as well as a steer on what is happening in our local markets in terms of competitor activity. We urge our clients to tap into this bank of expertise before they embark on construction procurement to minimise their exposure to rising costs and ensure their project can be undertaken within the timeframe required.”
Other topics in Building Trends include: the enormous retrofit challenge facing the industry in order to meet its target of reducing greenhouse gas emissions by 80% by 2050; the dramatic growth in new housing construction orders during 2013 helped by the rising number of mortgage approvals; and the slower increase in private commercial construction orders.
The report also provides an analysis of the current state of the market in office, industrial and retail property in Cambridgeshire, Essex, Suffolk/Norfolk and Buckinghamshire/Oxfordshire.
See the full report here.
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