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Construction costs could rise following Brexit vote

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Concerns over a short-term increase in construction costs have hit the market following the UK’s decision to leave the EU

One client told the AJ’s sister title Construction News there was ‘no doubt’ that costs and imports would go up in the short term after the pound fell dramatically this morning (24 June).

At one point the pound dropped by more than 10 per cent against the dollar in the biggest one-day fall ever seen.

The pound falling will be a painful hit for the industry, especially for jobs that have already been priced

Cast real estate and construction consultancy founder Mark Farmer argued there would be an initial upward rise in costs and a price pressure on contractors locked into lump-sum work.

National Federation of Builders chief executive Richard Beresford agreed, saying: ‘In the short term the pound falling will be a painful hit for the industry, especially for jobs that have already been priced.’

Equities analyst and construction commentator Alastair Stewart said imported material prices could go up in line with the fall in the pound.

But he added that with a potential decrease in demand – as projects are put on hold or even scrapped – the industry could see falling labour rates temper the overall increase in costs.

‘All in all, total costs might only go up [by] low-digit percentages and anything related to London residential could actually go down,’ Stewart said.

Arcadis head of strategic research and insight Simon Rawlinson said that between 20 and 30 per cent of the construction costs on many high-end residential and commercial schemes have a relationship to euro or dollar-denominated components.

This could add about 2-3 per cent to the cost of the supply chain, which would most likely have to be passed on to clients, he said, adding: ‘This will hit specific clients who are actively procuring products sourced directly from Europe.’

Make Architects founder Ken Shuttleworth told Construction News  the challenge the UK faced now was to stabilise the pound and the economy.

This a very sad day … the message that it sends to the rest of the world is that we are closing our doors

Make has designed major commercial projects such as TH Real Estate’s £400 million Gotham City office scheme at 40 Leadenhall Street, London. 

Shuttleworth said: ‘This a very sad day … the message that it sends to the rest of the world is that we are closing our doors.’

He added that the schemes currently ‘on pause’ would continue to stall ‘until we know what’s happening’.

Shuttleworth was less concerned about the impact this would have on his business, explaining that Make had been proceeding with caution in the run-up to the referendum.

His company stopped hiring in February ahead of the vote – although he added that this was also because of a downturn in the market.

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