Twelve months on and little progress has been made towards understanding what leaving the EU will actually mean for the UK as place to do business – and how, in turn, it will affect demand in London’s construction sector and the implications for the industry’s ability to meet that demand. In this special edition of our Central London Update, we explore some of the specific challenges leaving the EU presents for the construction industry.
We continue to see a split in the contracting market for mainstream and major projects as demand and supply dynamics diverge. With capacity scheduled to come back on stream over the next 12 to 18 months – at a time when demand is softening – London’s Tier 2 contracting market is becoming more competitive. As a consequence, tender prices are projected to reduce marginally as contractors become increasingly open to single stage tendering. Greater capacity within the supply chain servicing this tranche of the market should also help to allay delivery concerns, resulting in a more pragmatic approach to risk.
Dynamics in the market for major projects, with a construction cost over £100m, differ. Capacity is coming back on stream but demand is proving resilient. At the current time, Tier 1 contractors are relatively busy and have limited capacity to fill over the next 12 to 18 months. The volume of projects progressing under PCSAs, with final contractual terms yet to be agreed, potentially dilutes the clarity of this picture. Presently, however, Tier 1 contractors faced with significant upside risks to input costs, and relatively restricted supply chain scope, continue to be wary of accepting risk and the procurement environment remains challenging.
If you would like a copy of our Update please contact Kelly Forrest, our Head of Research.