According to the latest Savills Programme and Cost Sentiment Survey (S.P.E.C.S), build costs and timescales in the UK construction sector have increased for the first time this year in Q3 2016.
Savills says the currency volatility caused by the EU referendum is one of the factors directly impacting overall build costs, with EU imports, which account for 60% of all materials used in the UK construction industry, affected by the decrease in the value of the pound. Gardiner & Theobald reports that a 10% decrease in the value of the pound has resulted in a 2-3% increase in build costs.
The survey, which is based on 48 separate indicators on asset type and geography, tracks sentiment regarding the cost of construction, costs of fit-out and associated time scales for all grades and geographies of commercial and residential real estate across the UK. Savills says a score above zero demonstrates that costs and timescales are generally rising, whereas a score below zero indicates a fall. In Q3 2016 Savills recorded a rise of 11bps to 17 out of a possible 24 which is significantly above the current index average of 10.5.
Aside from any fluctuation in costs caused by the fall in Sterling, Savills says certain sectors have more specific drivers impacting overall costs. Retail, for example, is adapting to new format stores, incorporating click and collect points and undertaking better quality fit-out, and has therefore seen costs increase. Whereas the warehouse sector has seen a pause in speculative development and the price of its key component, steel, stabilise.
Simon Collett, head of building and project consultancy at Savills, comments: “The second edition of S.P.E.C.S demonstrates that for the first time this year both costs and timescales of project delivery are increasing for reasons around our decision to leave the EU, alongside wider sector-specific drivers.”
John Gallagher, director in the building and project consultancy team at Savills Scotland, adds: “Both costs and timescales of project delivery are increasing for reasons around our decision to leave the EU and uncertainty related to Indy Ref2 in Scotland. Add in the drawn out process for local authority statutory consents due to the volume of applications and smaller staffing, this is causing concern in regard to planning and budgeting construction projects.”