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What does the pandemic mean for construction costs and how does it affect landlords?

Brexit? Coronavirus? Social Distancing?


How does this all affect the construction industry and the property insurance industry?


The RICS predicted a rise of 27% in construction costs over the next 5 years. These figures were published prior to the current pandemic and do not account for the fallout since then.


With current limitations on resources, both material and labour force wouldn’t we anticipate the demand to outstrip the supply even more so?


Let’s look at some of the issues in more detail:


· A constricted pipeline to Europe and the rest of the world through the lack of adequate trade agreements - Both China and Italy, two of the worst hit countries, are crucial in the supply of materials to the UK construction industry, accounting for around £4bn of imports last year. Then there are other countries in Europe like Germany and Spain, who are core suppliers to the construction industry, which have all but shut up shop.


· Shortage of labour due to lockdown, or workers on lockdown in their home country.


· Limitations on site operations due to social distancing will prevent having several trades on site at once, thus prolonging the build time and associated overheads.


While it is difficult to predict construction costs in the aftermath of the pandemic, all markers indicate an unprecedented increase and one that landlords and developers should be aware of.


Landlords will want to ensure that their properties are adequately insured, particularly if they have not undertaken an insurance reinstatement cost assessment for the last few years of inflated construction costs.


Developers may need to rethink the logistics of some of their larger projects, in terms of finding locally sourced products, phased completion and other innovative ways to pursue their construction products with less reliance on major markets.


Just some thoughts for which feedback is welcome!

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