National property consultancy and surveyors, Naismiths, today (Monday 23 October) announced it has seen a five per cent increase in the number of development projects failing or struggling over the past 12 months, with ‘supply complacency’ — the belief that structural supply issues will serve as a hedge — a key factor in this.
The development sector has rarely been as active as it is at present, thanks to a mixture of international capital attracted by Sterling weakness, permitted development rights powering countless office-to-resi developments, a rapidly growing list of lenders and overall strong demand.
But the healthy development environment is proving a double-edged sword: a growing number of less experienced players entering the market are carrying out insufficient due diligence into the commercial viability of a project, while some developers are taking on increasingly complex projects and overtrading because finance is more readily available.
In particular, there is a belief among less experienced developers that the supply deficit is an in-built hedge for a project, effectively guaranteeing an exit. But with Brexit-related nerves and potential rate rises increasingly weighing on confidence and demand, this is simply not the case.
Blane Perrotton, Managing Director, Naismiths, commented: “The development market is thriving at present but this does not guarantee success if corners are cut and insufficient due diligence carried out. One particular issue, especially among less experienced developers, is the growing complacency that structural supply issues will act as a hedge. Against such an uncertain economic backdrop, this is no longer the case. Over the past year we have a seen a small but steady increase in developments either failing or starting to struggle, and this rise in red flags should remind anyone in the development space to be thorough not just in their initial due diligence but ongoing project monitoring.”
Naismiths is currently monitoring more than £2bn of development funding on behalf of institutional investors and finance providers around the UK, and offers both lenders and developers a full suite of surveying, monitoring and project management services throughout the asset lifecycle in order to mitigate risk.