London commercial market - contractors survey

With the UK’s last recession in the distant past, there remains a positive tone within the London commercial market.

Vacancy rates are low and demand is strong. According to the latest CBRE figure take-up in central London for Q3 2015 was 3.6m sq. ft., lower than the previous quarter but still above the 10-year average. Sentiment remains positive, the latest Savills development activity PMI surveys continues to be positive.

The amount of office and residential space currently being constructed is at a post-recession high, with rapid acceleration seen in the last twelve months. Contractors continue to be choosy about which projects they bid for, a trend consistent with previous years and a clear move away from the willingness to tender for a wide variety of schemes seen at the height of the recession.

Costs are rising too, directly resulting from constricted capacity in the supply chain and a lack of skilled people within contractor organisations who can run major projects. Pressure on revenues is pushing contractors to focus on margin rather than growth, looking for low-risk, high-certainty projects with clients and consultant teams they know.

Some contractors have recognised their exposure to the residential market, while anticipating that this sector will start to cool, are now looking at diversifying back into other sectors when assessing which opportunities to target and looking for schemes that best fit their own skills and expertise.

This raises challenges for clients and a need to sell their project. Contractors are no longer willing to chase every last opportunity down to the ground. Getting the tender shortlist you want is not as easy as it was.

Yet there are some positives. Contractors are looking to make an early decision on whether they are willing to go for any opportunity. A contractor that is prepared to go through a costly tender process in this climate is showing real commitment to a project and once on board, they’ll be absolutely focused on successful delivery. That dedication and professionalism is worth celebrating.