UK property developers are facing challenges due to rising costs of labor and materials, leading many to rethink their strategies, according to a study by Shawbrook.
Over the past year, developers have made changes in building materials (40%) and have built or plan to build different types of properties (39%). Residential housing developers are particularly affected by rising costs (44%), followed by build-to-let (41%), industrial (41%), commercial (39%), semi-commercial (38%), student residences (37%), and residences for later-life living (30%).
Shawbrook’s MD of Development Finance, Terry Woodley, commented on the change in strategy many are making, “For instance, they are incorporating a mix of residential, commercial, and recreational areas into single projects. This strategy diversifies income sources and reduces risks tied to any one sector. The popularity of build-to-rent, retirement living, and houses with multiple occupants (HMOs) is also on the rise.”
In fact, only 4% aren’t planning any changes. That means almost everyone else is trying to adapt and find new ways to keep the money coming in. One clever approach is mixing up what they build. So instead of just building a block of apartments, they might add some shops or a park, making it a more attractive package and also spreading their risk.
The Silver Lining:
Despite these challenges, a decent chunk—34%—of developers have actually expanded their business in the last year. So it’s not all doom and gloom.
Tips for Investors:
- Diversify: If the professionals are diversifying their projects, maybe you should too. Don’t put all your eggs in one basket, like residential properties.
- Research: Check out what types of properties developers are moving toward. If they are focusing on build-to-rent or retirement living, there might be a good opportunity there.
In short, while the terrain is a bit rocky, there are still paths to success. Keep an eye on how the experts adapt to these challenges, as their strategies could provide you with valuable insights.