As the London residential market continues to boom, the ‘deliverability ceiling’ looms for the supply chain. Brian Moone examines the data
The London residential market has been central to the recovery of the UK property market and is absorbing a high percentage of the construction output. While a recent EC Harris report identified that the rate of growth in the number of residential units in the pipeline had reduced from 70% in 2012 to 25% in 2014, the volume of work in the supply chain pipeline is placing pressure on the construction delivery partners. There are 12,000 units to be delivered between now and 2017 with a further 10,000 to the end of 2020.
The report concludes that the industry will hit a “deliverability ceiling” at between 3,000 and 4,000 units per annum, which will be exceeded by 750 units in 2016 and 2,000 units at its peak in 2017.
While the delivery of the majority of residential units is linked to specific regeneration projects, around 15% of the units being built are prime residential, and the high value of these units means they represent a much higher proportion of the spend. The units will require more resource from a limited pool of trades that are able to deliver high-quality, high-volume units. Already, a number of trades are reporting capacity issues as the workload starts to ramp up, and many do not yet have full visibility of the extent of work to be delivered in 2016 and in 2017 in particular.
But do specialist trades have the capacity to deliver the often more technically challenging prime residential construction projects?
High-volume residential fit out places a lot of demand on the supply chain with the need to integrate a high number of trades in the relatively small space of an apartment and the challenges of fast turnaround repeated activities, which can result in a “bow wave” of activity if the programme begins to slip. With many of the prime residential units being penthouse suites, these are frequently towards the end of the construction programme and therefore have a high potential for the programme to become compressed by delayed earlier phases of work.
The specification for prime residential units will include high-quality specialist products and materials that are not as readily available, often sourced internationally with their own unique lead in times. Stone finishes including specialist marble requires a separate programme as it is normal to order direct from the quarry. While there are no reported capacity issues with the quarries, stone contractors do anticipate lead times getting longer due to shortages of labour for installation.
Specialist joinery trades could become a bottleneck, in relation to their capacity to deliver specialist design. Many main contractors are ensuring they are able to take on future projects by booking in work early with specialist joinery contractors - they can do this because they know far in advance what their work pipeline will be. In some cases they are using just one specialist joinery contractor, and also in some cases securing their services by getting them signed up to the project at bidding stage. Specialist door sets and fittings are being procured internationally, often using specially sourced veneers or other finishes to set the apartments apart from others on the market. This can add to the need for doors schedules to be produced earlier in the programme to allow veneer selection and matching.
There are physical limitations to the number of people and therefore trades that can work within an apartment at the same time, placing restrictions on the programme of work. Off-site fabrication can negate some of these problems and there is currently a boom in the prefabricated bathroom pod market to address this issue. Lead times of 24 to 28 weeks, including approval of drawings and sign-off of the mock up are common. If specialist stone or items like exclusive ceramics, fittings or joinery are to be included within the prefabricated bathroom, these will need to be procured even earlier.
While there are manufacturers in the UK, the strength of Sterling against the Euro has made the import of prefabricated buildings an attractive proposition. As with any overseas procurement, the lead times get longer and need to start earlier, but as long as this is factored into the design and procurement programmes, the time on site is significantly reduced.
As a result of the long lead times, clients are already securing capacity with their supply chains through to 2017 and are turning away work based on capacity issues. It is essential that if an offsite strategy is to be implemented, suppliers’ capacity is identified and secured early.
Residential units have a higher concentration of mechanical, electrical and plumbing services to be delivered in a relatively small area. The high number of apartments programmed for delivery in each phase is putting pressure on the available resources. Prime residential have even more services to install in support equipment like high-end audio visual, building management systems, Wi-Fi, high-speed broadband connectivity and automated lighting and blind controls. The availability of contractors able to deliver these high value services are limited. Again offsite manufacture has been adopted as a potential solution with the prefabrication of apartment service cupboards or risers incorporating pipe runs, pumps and other plant.
It is clear that the residential market boom is putting increasing pressures on the trades associated with the delivery of fit out to residential apartments. The pressure on the prime residential market is exacerbated by the small number of companies that can deliver the required quality. Off-site manufacture, while being a solution to some of these problems, is already beginning to hit capacity issues and when combined with already longer lead times, requires careful planning.