Property developers navigate rising costs

• A third of developers have been able to expand their business despite challenging conditions
• Two-in-five developers list rising labour costs as their biggest concern

The fluctuating economic conditions, escalating material prices, regulatory pressures and changing customer preferences means property developers are finding themselves at a crossroads. The traditional approaches that once guaranteed success are now being reshaped to address the challenges.

Property development is undergoing a significant transformation, as rising costs compel developers to rethink their strategies, according to new research from Shawbrook.

The fluctuating economic conditions, escalating material prices, regulatory pressures and changing customer preferences means property developers are finding themselves at a crossroads. The traditional approaches that once guaranteed success are now being reshaped to address the challenges.

With two-in-five (38%) of developers confirming that rising labour costs are their biggest concern, 36% also cite the cost of materials as being a key driver forcing them to pivot on their plans. Rising costs are especially pertinent for developers with residential housing developments (44%), compared to build-to-let (41%), industrial (41%), commercial (39%), semi commercial (38%), student residences (37%) and residences for later life living (30%).

As a stark indicator of the challenges facing developers, only 1% said that they didn’t have any key concerns or challenges over the past 12 months.

Due to the impact of increased costs, 96% of developers stated that they have been prompted to make changes to their business strategy over the past 12 months, with a change in building materials (40%) being the most popular change. 39% have also built or are planning to build different types of properties.

Increasing profit margin has played the biggest role in influencing developers into making these changes, according to 36% of developers, while 29% have made changes in a bid to become more sustainable.

Despite facing significant hurdles, more than a third (34%) have been able to expand their business in the last 12 months, demonstrating that developers have remained resilient and flexible in the face of a volatile market.

Terry Woodley, Managing Director of Development Finance at Shawbrook, added:

"Property developers are displaying resilience as they adapt to new directions in construction.

“Only 4% of developers are not planning to make any strategic adjustments, highlighting just how crucial the need for adaptability is going to be over the next 12 months. What will be most interesting, however, is the routes developers choose to go down in order to make their plans profitable.

“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.

“A key factor for developers is finding a funding partner that can stay committed throughout the entire process, offering expertise and flexibility from planning to execution."