Q3 construction activity driving up costs – report

THE increase in construction costs and procurement pressures will drive up costs in the sector by 5% by the end of 2014 says the latest JLL and Glenigan UK Commercial Construction Activity Index.

This is against a backdrop of some £23.6bn of commercial construction projects started over the year to Q3, 2014 an increase of 4.2% on the £22.7bn recorded for the year to Q2.

New build activity – at £12.5bn – has increased too as developer confidence returns. 

Whilst positive for the sector, the growth in construction activity is driving up lead times and procurement costs.

Graham Taylor, project and development services director in JLL’s Birmingham office, said: “Cladding and curtain walling from design to manufacture is taking 50 weeks and traditionally short lead-in activities such as concrete block work and brickwork are taking up to 16 weeks.

“The time increases are being driven by huge demand from the private residential, student and public sectors. 

“A post-recession skills shortage is also contributing to rising costs and lead times. Mechanical/electrical sub-contractors are like gold dust at the moment.

“When you consider that labour costs on a job notionally represent around 25% of the total, any increase from sub-contractors charges will have a significant impact on out-turn costs even without appreciation in materials.”

The rise in the volume of opportunities also means that main contractors are in a stronger position to go for the more profitable jobs with lower risk profiles.

Taylor said: “During recessionary times many would take on risk with the view of renegotiating with their supply chains and buying turnover but not necessarily profit. 

“Now they are cherry picking contracts. Clearly this is why, more so than ever, we recommend working with a professional team which can help safeguard against time delays and spiralling costs.”