London contractors are more selective about the work they bid for as uncertainty and risk shape pricing and workloads, a consultancy has said.
According to Turner & Townsend, firms are looking more closely at contract terms and avoiding jobs with higher commercial risk, following several years of cost inflation, insolvencies and unstable market conditions.
Its latest report says softer market conditions have not led to lower prices, as contractors continue to focus on protecting margins rather than chasing volume.
“Contractor appetite is not guaranteed, due to capacity constraints and high-risk aversion, even when output is low,” the report notes.
Turner & Townsend says recent specialist contractor administrations have reduced capacity in parts of the supply chain, prompting firms to be more selective about the projects they take on and the terms they accept.
While capacity remains in the market, particularly among early-stage trades, contractors are still reluctant to compete aggressively on price due to ongoing concerns over risk, the report adds.
“Even if workloads decrease, little reduction in pricing is expected,” the consultancy says.
According to Turner & Townsend, contractors in the capital are shifting away from commercial projects towards sectors with more secure pipelines, including data centres, industrial work and publicly funded schemes such as defence, healthcare and infrastructure.
It warns that this trend could further tighten capacity for London real estate projects.
Demand for grade A office space remains strong in the capital, with more than 40 per cent of space under construction in central London already pre-let. However, high borrowing costs, planning delays and doubts over viability continue to slow the volume of new starts.
Some investors are also moving capital into government bonds and other lower-risk assets, the consultancy adds.
The lack of new office schemes is driving more refurbishment work, it says, as landlords opt to upgrade buildings rather than construct new ones.
Costs are moving in different directions, Turner & Townsend says: there are fewer labour shortages and pay rises have slowed, but building-material prices are still rising because energy and transport costs are affected by global political tensions.
The report says the conflict in the Middle East has had a more limited impact on construction costs than the war in Ukraine, although it warns further disruption could yet push prices up.
The consultancy has kept its forecast for London tender price inflation at 3.5 per cent for 2026 and 2027, saying weak demand is offsetting underlying cost pressures.
It advises developers to bring contractors in earlier and improve how they buy and plan projects, rather than wait for prices to fall, as contractors are currently more focused on maintaining a steady pipeline than cutting prices to win jobs.
