Construction companies could be well positioned to benefit from a “rapid acceleration” of investment in data centres, pharma facilities and gigafactories, a leading consultancy has observed.
Confidence in new build projects in the Advanced Manufacturing and Technology (AM&T) sector is on the up, according to Arcadis, but they still present tremendous financial risks for the client or developer.
Contractors have a unique opportunity to get in on this multi-billion-pound growth industry at ground level by ensuring they are prepared to address key challenges and concerns of clients early on and throughout the project lifecycle.
“The sheer scale and complexity of these end-date-critical projects inevitably results in more financial risk, meaning that clients need to evolve their design, procurement, and construction capabilities even as these multi-billion-dollar programmes are being built”, said Arcadis.
Elsewhere, contractors should brace themselves for ongoing ‘belt-tightening’ and cuts in government capital investment, brought on by unfavourable fiscal conditions which, according to Arcadis, could continue beyond the current and next financial period and until 2029.
Long-term networks delivery and framework opportunities in certain sectors in the Infrastructure industry currently offer the best chance to withstand these sustained pressures, particularly in net zero and energy transition projects and in the Water sector including the £96 million Asset management Period (AMP) 8 between 2025 and 2030.
“Whilst optimism as measured by the construction PMI has improved, the legacy of a weak order book from FY2023 will delay recovery until late FY2024 before the positive sentiment is realised. The infrastructure sector looks set to offer the greatest future opportunity,” said Arcadis.
Adding: “In both sectors, capacity constraints will contribute to higher inflation and may impact the ability to deliver all projects and programmes in the period.”
These analyses come amid news London is once again ranked the most expensive city in the world in which to build across residential, commercial, and public sector developments, with enhanced specifications around building safety, sustainability and client expectation pushing up construction costs.
Uncertainty could continue in FY2024, given local, mayoral and national elections in the coming months
Construction cost rankings in UK and Ireland cities
- London (1/100)
- Bristol (10/100)
- Manchester (12/100)
- Birmingham (14/100)
- Edinburgh (15/100)
- Cardiff (16/100)
- Glasgow (18/100)
- Dublin (19/100)
- Belfast (28/100)
Expert comment
Simon Rawlinson, head of research and strategic insight at Arcadis, said: “The UK’s reduced public sector spending has eased pressure on an overheated construction industry amid slow growth.
“With minimal GDP growth and high interest rates, the sector faces viability challenges due to regulatory and election uncertainties.
“As fiscal conditions tighten, private sector collaboration is crucial for investment and urban renewal.
“Despite challenges, infrastructure, particularly in energy transition and water projects, shows promise.
“The cancellation of later HS2 rail phases has led to transport spending disruptions and fund reallocation.”
Peter Hogg, UK cities director at Arcadis, added: “London’s resurgence to the top spot in the [International Construction Costs] 100 index for 2024 reflects the capital’s resilience in the face of challenging conditions.
“Despite a 10 per cent year-on-year decline in construction output and a significant 20 per cent drop in housing, the Commercial sub-sector experienced a notable 24 per cent rise, largely attributed to retrofit activity.
“However, the capital has faced declining orders for new work since 2022, exacerbated by high interest rates impacting scheme viability and regulatory changes causing design and planning delays and cost escalations.”
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