A report from AECOM has detailed issues with reduced capacity and a risk-averse environment and the effects this will have on projects in the Capital
The London construction market could be adversely affected by low-risk approaches, says AECOM’s London Main Contractor Survey.
The survey covers firms with a combined turnover of £6bn, and found that tier one contractors have already filled their order books for 2025.
New contracts tendered has reduced
The survey found that tendering activity in the region fell to 60% in 2024, down from 72% in 2023 and barely within the margin that the market has not experienced a major shock (defined by tendering falling below 60%).
The report determines that this drop is due to a low-risk approach being taken when tendering as a response to recent economic instability and an adjustment period for new legislation, including the Building Safety Act.
The housing target for London is 88,000 homes per year, whereas currently just 38,000 are being built.
Further issues were highlighted with the skills shortage and a general labour shortage. The report says that the true scale of the issues is difficult to see due to the glacial pace at which many housebuilding schemes are being delivered. It is believed that while it is good that the new processes will mean projects are approved more quickly, it will be for nought if there is not enough skilled and unskilled labour to perform the work.
London construction market more stable than in recent years
Despite these warnings, the report also suggests that the current market is actually more stable than in preceding years, with a relatively good work pipeline and further government commitment to infrastructure delivery. Inflation estimates for construction firms in the London construction market are at 2.9% for 2025, down from the previously predicted 2.94%, and also down from last years inflation rate.
Brian Smith, head of cost management at AECOM, said: “The feeling among the capital’s largest contractors is that there are sufficient opportunities available to them. However, a range of market factors – from regulation to labour availability – mean they’re filling their order books with caution. ISG’s collapse in September was a wake-up call for the industry and, understandably, contractors aren’t wishing to overreach themselves. As a result of this low-risk environment, we’re seeing a broader capacity crunch developing, with sub-contractors facing a more competitive market to secure work.
“The government is committed to delivering new homes and investing in vital infrastructure, which will increase contractors’ confidence and appetite for risk longer-term. But this needs to be matched by greater support for the industry, which will help firms to increase their capacity to meet the growing project pipeline. This means bolstering training schemes to bring new people to the sector and addressing the UK’s loss of European labour post-Brexit.”
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