London fit-out report - autumn 2017
The gradual cooling of the market seen over the last two quarters has continued into autumn. Our analysis shows that annualised construction output in London has remained flat, with a marginal decrease in output of 0.4 percent. The supply chain has reported a reduced number of opportunities coming to market and this is reflected in much more competitive pricing strategies being seen.
Tendering conditions continue to cool
Our survey of over 100 suppliers in the London fit out market shows that tendering conditions continue to cool with a noticeable change over the past quarter. There appears to be an increase in competition as main contractors and trade contractors look to secure workload in the next year. For clients to maximise the opportunity, they will need high quality, coordinated, tender documentation and planned market warming.
Plenty of capacity across design disciplines
The majority of consultants do not anticipate the market to change significantly. There appears to be plenty of capacity across all design disciplines. However, hiring skilled resource remains a consistent limitation for consultancies. Clients should be clear on the personnel being allocated to their project to ensure quality standards are maintained.
Main contractors looking outside their usual supply chain for competitive advantage
Order books increased marginally over the quarter. Tier 1 sub-contractors in particular remain selective on the projects they tender for as their order books remain relatively strong. There is particularly intense competition in the sub £10 million project value range. This is forcing main contractors to look outside their usual supply chain in order to be competitive. Clients should be mindful that lowest price doesn’t always mean quality is guaranteed.
Insolvency risk increasing as margins come under pressure
There is clear evidence that the market is beginning to slow, with a reduction on overhead and profit levels being seen. Aggressive bidding by main contractors on single stage tenders, together with the weak pound and increasing material and labour prices, is putting real pressure on margins. It remains to be seen whether sub-contractors can continue to bear the burden of this pressure before insolvencies start to rise. As such clients and consultants should research their supply chain carefully before procuring.
For the full analysis and insight, download the full report here.
If you would like to discuss the London fit-out report or any of the topics covered, please contact Colin Wood, or your usual Turner & Townsend key contact.