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Recession has changed the industry – often for the better

There is no doubt that the commercial sector in London is picking up, but we’ve seen a number of projects put on hold or cancelled in recent times, so is there really light at the end of the tunnel?

A few of these older projects are being dusted off and brought back to the market. This signals a rise in optimism, rather than a complete recovery.

But perhaps we can’t expect to see the London commercial market return to how it was before 2008. Recession changed things and, because it was so drawn out, some of those changes are likely to be permanent.

“I’m sure none have escaped the inevitable downsizing, but for some, that process will have become ‘right-sizing’”

The position of companies in the construction business has been challenged by the difficult economy.

With fewer large developments, larger contractors have turned to smaller projects, and ended up competing with not only the medium-sized contractors that have traditionally taken on these jobs, but also smaller firms looking outside their usual areas of work.

Getting the right size

For some companies, the change has opened their eyes to different business models. I’m sure none have escaped the inevitable downsizing, but for some, that process will have become ‘right-sizing’.

Most can win work in a booming market, but slimming down operations, focusing on the work they do best and avoiding the price or volume-driven jobs that provide less reward have made many in the industry leaner and fitter - and some more profitable.

Contractors and the supply chain have had to work harder to deliver value - for clients and for their own balance sheets. Innovation in areas such as BIM, offsite construction and programme management have helped to cut costs.

“In a trimmer marketplace, the best should be able to command a more robust price”

More challenging are areas such as sustainability. In a price-driven market, energy-saving or environmental features that provide long-term benefits but may require more upfront investment are more easily dismissed as too expensive by developers eager to realise their investment.

To deliver the ‘green’ features some tenants demand, contractors must persuade clients of the benefits and find ways to deliver them cost-effectively.

New dynamics

Clients have been able to squeeze the price of construction in recent years, but as the market picks up, developers will be looking to secure the best people to deliver their projects and drive the best value from the construction process.

In a trimmer marketplace, the best should be able to command a more robust price. I see a point in the near future when limited construction resource at the top will change the dynamics of supply and demand.

Developers will also be looking at different ways to fund projects. Finance is not yet abundant but developers want to move quickly.

I anticipate the London commercial market opening up to different procurement routes, embracing elements of early contractor involvement, sharing risk and reward, and greater collaboration.

That way, everyone makes money and together we can drive out unnecessary cost - but it will take smarter thinking, greater innovation and trust to make it work.

Paul Chandler is executive vice-president at Skanska UK

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