London’s sky high building costs set to rise higher

London’s largest building contractors are turning down up to 75% of new business opportunities.

With construction of London office and residential space now topping pre-recession peaks, the 2015 London Contractors’ Survey reports that large firms are becoming increasingly choosy about which projects they are prepared to bid for.  

The study by infrastructure and support services group AECOM polled the capital’s largest contractors including Galliford Try, Laing O’Rourke, Sir Robert McAlpine and Willmott Dixon.

Building costs in London rose to the second highest in world after New York, according to research published in the summer. AECOM estimates that construction cost inflation has jumped 10% during 2015, and predicts increases of 7% in 2016.

The rising costs have been blamed on a growing skills shortage in the construction sector, which has pushed up pay demands.

Wages for joinery work fitting-out prime London residential and office space increased by up to 15% in 2015, according to infrastructure and support services group AECOM.

The survey found that some contractors are concerned about their exposure to the residential market given the expectation that London house prices will start to cool. Many are now looking at diversifying again into other sectors.

Brian Smith, director of cost management at AECOM, says: “The industry is taking a far more strategic approach, targeting schemes that will deliver planned margins.

“Risk appetite among contractors is low, with a desire for certainty meaning that projects may be taken on a smaller margin if the return is guaranteed.”  

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City AM