EDITOR’S COMMENT We don’t usually talk about contractors much here at EG, but when EY was called in as administrator to ISG, signalling the downfall of another tier one firm, it was evident the collapse was going to be felt by our community of developers and placemakers.
According to Glenigan, industrial, commercial and private housing projects on ISG’s books total more than £2.8bn. Overall, the business had some £2.5bn of projects on site and £1.7bn in the pipeline.
Those include a £200m data centre in Slough, a £150m data centre for Vantage in Ealing and another £150m data centre in Hillingdon. Add to that 19 construction frameworks it was on, with a combined value of more than £100bn, and the scope of the collapse feels vast.
With the demise of ISG there not only comes a question mark over the dozens of projects the group was contracted on, but a much bigger question over the viability of future development.
Following the collapse of contracting giant Carillion in 2018, Lendlease’s plans to sell off its international construction business, announced earlier this year, and now ISG’s administration, the pool of available builders in the UK is getting ever smaller. And no one knows better than the real estate industry what the impact of a lack of supply is – an increase in costs.
For developers this can be a positive – a lack of product coming to market is a sure-fire way to see rental tones increase.
But when there’s a lack of companies and a lack of labour – thanks Brexit – to actually build that product, the cost of developing goes up. Recent figures from the BCIS show an anticipated 15% increase in building costs over the next five years; an increase it expects even with overall output falling by 5.5% this year.
Those costs will rise further with ISG out of the picture as a potential contractor. And if they do, what will it mean for the UK’s ability to deliver development?
It couldn’t have been more badly timed. The collapse came just days before the Labour Party descended on Liverpool to promote what it was doing to unblock the planning system and get the country building again.
Be that fixing crumbling hospitals with dodgy concrete, delivering much-needed prison space, building 1.5m homes, developing a booming science sector by creating best-in-class campuses, and retrofitting, refurbishing and – where appropriate – redeveloping our workspaces to make them efficient, collaborative and environmentally sound.
And the real estate market is ready to get going. The promise of brownfield passports to make it quicker and easier to turn redundant urban spaces into usable developments has been pretty much universally welcomed by the sector. Industry stalwarts have joined a new towns task force to ensure the right development happens in the right places.
Real estate is ready to build but what do we do when we don’t have the builders? Or we only have a small pool of builders available that can effectively name their price? Just when it was feeling like it might be getting easier, has the collapse of ISG pushed things back?
If this government really is intent on getting us building again, it will need to put in appropriate support systems along the whole of the built environment chain. If building costs go up, something else must surely need to go down. Will this government break the mould? I’m not so sure. Not with that big black hole they’ve repeatedly told us about.
Not to leave you on a downer, how about something to remind us what really makes the property industry go round? Next week, these pages will be filled with the brilliance that was EG’s Real Estate Futures event. The hundreds of you who were there will know what to expect, but those who weren’t, prepare to be uplifted.
But before that, how about this? We may have thought the Oasis reunion was going to be the biggest get-together this year but it seems another band reuniting has led to an even bigger frenzy. All hail the return of the Pillar Property lads. Darren Richards’ decision to leave British Land and rejoin old pals Andrew Jones, Valentine Beresford and Mark Stirling at LondonMetric seems to have set the property world alight.
Champagne Supernova, anyone?
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