In the past decade, London has seen a boom in the construction of office space driven by the growth of the city’s tech and financial sectors.
But the industry is facing a tough year. There have been signs of a slowdown in the market, with statistics from the Federation of Master Builders showing that workloads among London’s construction SMEs fell 5 percentage points in the first quarter of 2018 – compared with the previous quarter – to +10% [i].
Some 58% of SMEs are finding it difficult to hire bricklayers, while 55% are struggling to take on carpenters and joiners…
Reasons for the slowdown
There are several factors that have contributed to the downward turn in growth, including:
- The Beast from the East: The first quarter of the year was severely affected by snow and freezing temperatures. Many construction sites across the capital ground to halt in February and March.
- Rising costs: London is now the fifth most expensive place to build in the world, behind New York, San Francisco, Hong Kong and Zurich. Construction costs in the capital are expected to rise 2.8% in 2018, while labour costs have also increased by 3.1% [ii].
- Skills shortage: London’s builders are being hampered by the scarcity of skilled tradespeople. Some firms are reportedly even having to turn work down because they do not have the staff required.
- Brexit: The lack of certainty surrounding what sort of trade deal Britain will end up with when it leaves the EU is presenting a continuing challenge to the construction sector. An estimated 27% of construction workers in London come from other EU countries [iii], so the prospect of them heading home is a real worry for employers. Bank jobs could also move to other EU cities, which could mean less demand for new office space in London.
Steve McGuckin, global head of client programmes at project management firm Turner & Townsend, says: “In the UK, the skills challenge continues to contribute to cost inflation.
“We need to adopt digital tools, modern manufacturing methods and automation if we are to ease the pressure on resources and help attract new talent to our dynamic sector.”
Future projects planned for the capital
Despite the uncertainty surrounding Brexit, a raft of new buildings and housing is planned for London that should help the construction industry to pick up in the coming months and years.
A record 510 tall towers are either in the planning stages or currently under construction that will change the city skyline forever [iv]. In the past two years, work has started on more projects than in the previous five years put together. At 278 metres tall, Twentytwo will be among the tallest buildings in the City of London when it is completed next year. Eventually, it will be surpassed by 1 Undershaft (known as the Trellis) at 290 metres.
Two of Europe’s tallest residential towers will be the Landmark Pinnacle on the Isle of Dogs and the Spire London, in West India Quay.
In Croydon, the world’s tallest modular tower has received planning permission. It will comprise more than 300 build-to-rent flats to provide affordable housing for first-time buyers.
Mayor of London Sadiq Khan has also just announced a new programme to build 10,000 council homes over the next four years. Councils can bid for a share of the £1.67 billion of funding secured from the Government for affordable housing announced in the Spring Statement.
Under the first deals struck, 525 new council homes will be built in Waltham Forest with £26 million of funding from City Hall, while both Newham and Lewisham Councils have each committed to 1,000 new homes by 2022.
NIG in London
Construction businesses in London can protect themselves against the challenges that lie ahead with NIG’s commercial insurance expertise. Our in-house experts can help you find a policy that offers the right cover for your business’s assets.
Our dedicated team of six local Trading Underwriters based in Fenchurch Street have an extensive knowledge of underwriting Contractors All Risks Policies with premium spend between £750 and £100K.
Find out more about our Contractors Combined product here.
Follow NIG on LinkedIn