LONDON
We are witnessing complex dynamics within the residential sector in London. On the one hand, the sector has been impacted by recent legislation including the Building Safety Act and a slowdown in the level of investment. On the other hand, it is being positively impacted by the reduction in interest rates and reported increase in house prices.
The new government has announced an ambitious housebuilding programme and brought back housebuilding targets for local authorities, injecting an element of much-needed optimism into the residential sector. Yet, there are widespread reservations within the industry as to the government’s ability to deliver on its commitment.
MARKET CONDITIONS & PIPELINE
Increased activity bodes well for sector’s recovery in 2025
The market outlook is positive and optimistic. Even though the construction sector is still in recession with recovery expected from 2025 onwards, London has seen an increase in planning and bid activity. There has been a steadier flow of planning consents in the last two quarters, despite expectancy of a slower year for 2024.
With many schemes still stuck in the development cycle, however, the industry hopes for a smoother and swifter planning process under the new government. The appetite for investment will also remain low until ministers confirm their spending plans. Anticipated lower interest rates should encourage investment generally.
There is a growing trend for sustainable retrofit projects that deliver high ESG benefits and contribute to net zero. Labour shortages, particularly of workers with experience of working on major projects, is being exacerbated by the skill drain to the Middle East.
Contractors report a steady flow of work and full order books and are expecting a busier 2025. But given current market conditions, they remain cautious and monitor suppliers’ financial health to minimise the risk of project delays caused by unexpected insolvency issues. Insolvency has been at an all-time high but there are signs this is levelling out.
RLB Market Activity Cycle
The RLB Market Activity Cycle is a representation of the development activity cycle for the construction industry.
RLB considers 10 sectors to be representative of the construction industry as a whole. Each sector is assessed as to which of three activity level zones – peak, mid or trough – best represents the current status of the sector within the cycle. This assessment is then refined by identifying whether the current status is in a growth phase or a decline phase.
The subjective current performance of sectors is identified by ascribing one of the coloured arrows (shown in the legend of the chart) to each sector. NB: In this analysis, sectors are not individually weighted.
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Market sector activity analysis: London
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of a region enables the calculation of a regional representation of percentage of sectors in each phase of the cycle at a point in time.
Market sector activity analysis: United Kingdom
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of multiple regions enables the calculation of a national representation of percentage of sectors in each phase of the cycle at a point in time.
TENDER PRICES
Prices stable this quarter but set to increase at faster rate
While there have been further rises in material and labour costs, tender prices have been relatively stable over the past quarter, which reflects reports that some input costs are levelling out.
Tender prices are expected to increase at a faster rate than costs by the end of the year, in anticipation of increased demand arising from the government’s plan to establish new frameworks focusing on infrastructure development, affordable housing, green construction, and sustainable building practices.
Tender price change
▉ RLB London
▉ BCIS (National) TPI ▉ BCIS (GBCI)
▉ Competitors (High) ▉ Competitors (Low)
INPUT COSTS
- The cost of construction materials remains high due to inflation, ongoing disruptions in the supply chain and global demand pressures.
- Key materials such as concrete and copper have seen significant price increases.
- The continued shortage of skilled labour in the construction sector is pushing up wages and making it challenging to meet project deadlines.
SECTOR FOCUS
Commercial
We expect to see fewer new build commercial office developments in the coming years as the agenda for refurbishment and fit-out of existing offices takes a stronger hold of the market. We are seeing changes of use from commercial office to life sciences, or even private healthcare.
Data Centres
There is strong demand for data centres, both new builds and refurbishments. The sector continues to be a major draw of resources including power, materials, plant and the skilled personnel needed to deliver projects. Prime issue is the availability and lead time of MV/HV connections from the UK national grid, which is a significant headwind to project pipeline.
Energy
Power planning reform is currently top of the agenda since the change of government, and we have already seen moves to unblock the planning system to deliver greater onshore wind capacity. Another priority is to address the current backlog of grid connection applications (circa 700GW).
Healthcare
The New Hospitals Programme remains under review and testing of its viability in terms of cost and programme delivery has yet to be determined. In the last quarter there has been a gentle increase in enquiries for healthcare projects generally.
Residential
The new government has set out ambitious targets for new homes, which has raised optimism in the sector but also raised questions around how those numbers can be achieved. We are seeing an increase in housing schemes passing through planning and new schemes being tested for viability, but costs remain high, challenging housebuilders’ profitability, and investment is still low.
LONDON, UK
East Wick and Sweetwater
RLB is working with Places for People and Balfour Beatty Investments on East Wick and Sweetwater Phase 2, a project to deliver 210 mixed-use residential units and further develop the new neighbourhood of East Wick.
The project comprises five apartment blocks and 15 town houses, designed to a high sustainability standard and carefully integrated within the existing location, framed by the River Lea and Queen Elizabeth Olympic Park.
The shape of the residential buildings is maximised for energy efficiency and brings natural daylight into the units. These will have exemplary thermal performance and air tightness, and will benefit from low-carbon heating through connection to a district energy scheme.
The development incorporates extensive and carefully designed public realm, with communal gardens and an inclusive play area designed in consultation with London Legacy Youth Voice.
