Move could lead to less competitive pricing on big jobs, clients warned

Industry leaders have been caught off guard by Lendlease’s decision to put its UK construction business up for sale, with some warning it could lead to less competitive pricing on big schemes.

The New South Wales-based multinational announced on Monday that it intended to sell its overseas construction arms by the end of 2025 so it can focus its operations on home turf in Australia.


Lendlease said on Monday that it would sell its overseas construction arms within the next 18 months

A spokesperson for Lendlease said the UK construction arm, which employs around 700 people, was only told on Monday that it was being put up for sale.

Although an open letter from shareholders had recommended the move earlier this year, one industry source said such an “extreme” decision had come as a surprise.

“Did anybody anticipate this? I don’t think so. I don’t think anybody anticipated something this significant,” they said, adding: “I don’t think any of us thought that they would actually go as far as they have done.”

Core Five partner James Clark said the announcement had come as “quite unexpected big news” which had not been anticipated by the cost consultant, which is working with Lendlease on the £120m 90 Long Acre scheme in London’s West End.

A 47-page strategy document released by Lendlease on Monday outlined plans to remove all overseas management structures within the next 12 months, with the group’s investment business to be the only part of the firm to remain active outside of Australia.

It blamed low overseas construction margins of just 0.6% and “overweight” projects for the move, which it said would free up AD $4.5bn (£2.35bn) of capital in order to pay down debt and realise value for its shareholders.

But there have been questions over who would buy a business that Lendlease bosses have admitted is faced with serious issues, and fears over how the construction sector would be impacted by the loss of such a large player.

Sellar development director Richard Garvey said it could result in a smaller pool of tier ones for clients on major schemes in a market already restricted to just four or five firms, including Multiplex, Mace, Skanska and Sir Robert McAlpine.

“This further narrows the options on selection of main contractors to tender on major projects, particularly on fixed price work,” he said.

“This narrowing could lead to less competitive pricing on some projects. We think this will push further our need to work closely with the supply chain at increasingly earlier stages of our projects.”

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Clark added: “If we lose a major player from the market, in terms of the tier ones, will it affect competitiveness? Possibly. 

“Everybody who’s tendering a project at the moment, and has Lendlease on their list might feel they’ve got one less on their list now.”

He said Core Five was now weighing up the impact a Lendlease exit would have on its clients, “whether they have Lendlease on site, or whether they are going through a tendering or negotiation process with Lendlease, because it will inevitably affect the dynamic of those relationships.”

72 upper ground

A two-year planning delay has hit CO-RE’s redevelopment of the former ITV Studios on the South Bank, which would be built by Lendlease

Clark added the sale could be an opportunity for a firm wanting to break into the UK market, although this would mean picking up a business that has “got a few problems”.

Another industry source described the decision to announce the restructure without informing the market of a potential buyer as a “fire sale” and a “very weird way to sell a business”.

“I can’t imagine who on earth would buy the UK construction company. I can’t imagine any of the Chinese companies would be interested,” they said, adding that a deal would come with a lot of liability for a buyer to take on.

The move comes after four years of steadily dropping share prices with the firm’s stock having lost around half of its value since the pandemic.

Delays have hit several of the firm’s biggest schemes in the UK including CO-RE’s £700m ITV studio redevelopment, which has been stuck in planning limbo for two years, the £429m 120 Fleet Street job in the City of London which has been stalled by ongoing discussions with its Chinese developer and the £1.9bn Smithfield scheme in central Birmingham which has undergone several redesigns. 

Lendlease chairman Michal Ullmer admitted that security holder returns had been “poor” amid a series of structural challenges and a prolonged market downturn.

“We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers,” he said.

“We have announced the blueprint to position Lendlease for success, focusing on our core strengths and competitive advantages. We have thought very carefully about the necessary strategic refocus and made some tough decisions.”