Third of property developers pause projects over cost uncertainties – Atelier

Shortages of skilled workers, long delivery times and rising fuel prices are among the worries hitting surveyors and developers surveyed by lender Atelier and Paragon building consultancy.

Labour costs have increased by at least 15 per cent over the past year, according to a quarter of those polled.

Rising interest rates were also a fast-growing concern for the industry, as 93 per cent said they were increasingly alarmed over the spike in fuel prices.

However, worry over Covid has dissipated with only nine per cent citing the pandemic as an issue.

Almost one in three developers has a contingency of 10 per cent or more for a standard residential development worth £3m, double the five per cent margin typically budgeted for.

Rebecca Nutt, director of portfolio management at Atelier, said: “Residential real estate is buoyant but the waves of inflation keep coming, and unwary developers risk being swept onto the rocks of surging build costs and project delays.

“To be successful in todays market, you don’t just need a watertight development plan but also the courage, skill and contacts to change it at short notice without losing momentum.

“At Atelier we’re acutely aware of the cost pressures our customers face, and that’s why we provide each one with access to our team of in-house construction and finance professionals – who can quickly assist if unforeseen events force the project to change tack.”

Robert Kendall, director at Paragon building consultancy, added: “While material cost inflation eased off at the start of 2022, our research suggests the respite is likely to be brief. The supply chain stepped up well to the surge in developer demand as the pandemic eased, but the spike in fuel and raw material prices triggered by the war in Ukraine means that cost pressures are once again likely to eat into developers’ bottom lines this year.

“Those pressures are being felt most keenly by smaller developers, who have less purchasing power and limited leverage when it comes to persuading newly emboldened contractors to share the cost risk, and work on a fixed price basis. With the Bank of England widely expected to increase interest rates further in 2022, the fixed rate finance and expert support offered by Atelier provide vital certainty for developers in an exciting but testing market.”