Construction companies in the U.K. are offering to partially finance clients’ projects for the first time in a bid to kick-start development as banks restrict lending, according to a survey of more than 70 contractors by real-estate adviser Davis Langdon LLP.
Some building contractors are also allowing developers to delay payments so projects can go ahead while funding is being put together, according to the survey by Davis Langdon, a unit of Aecom Technology Corp. The aim is to maintain revenue and avoid firing workers, the survey said.
Construction groups are varying their business models because many are for the first time only breaking even on projects, the survey said. British Land Co., the U.K.’s second-largest real-estate investment trust, told analysts on Sept. 23 that the construction cost of its six current developments are the same as it paid in 2005, citing figures from Davis Langdon.
“They are looking for a share of the profits in return for offering the finance and it’s usually for projects on a bigger scale, meaning 20 million pounds ($31 million) plus,” said Iain Parker, head of London-based Davis Langdon’s European office, which surveyed more than 70 contractors in the past eight weeks. This has discouraged developers from accepting the aid offers, he said.
Contractors believe there is increased competition “bubbling under the surface” with French and German firms looking into entering the market. Subcontractors are facing increased competition from Ireland, Europe and Asia, according to the survey.
This year will be a time of recovery and contractors are optimistic in projections up to 2014 with more projects planned in the commercial and residential sectors, according to the survey. Parker said while he hopes the market will pick up within three years, “we’re going to be bumping along the bottom for a while.”
Public-sector work now makes up 27 percent of the average contractor’s revenue, a 35 percent increase since before the global financial crisis, because of a drop in the number of commercial, residential and retail projects being built, according to the survey.