Overseas developers face barriers in the UK
As the attractiveness of investing in the UK continues, overseas investors increasingly participate in development in the UK. Without local reputation or established relationships, these new entrants to the market face challenges.
Neil Grey, Senior Director in Project Management considers how overseas investors or developers can gain access to the UK construction market.
The increasing flow of capital into the UK and the corresponding competition this has created for prime property assets has meant that overseas investors are now becoming involved in development (read our Investment Outlook for 2016). This takes various forms, from passive funding roles through participation in joint ventures with UK developers, right through to overseas businesses seeking to set up and run development projects from scratch. In the case of the latter it has predominantly been investor/developers from a construction and development background with a successful track record of development in other geographies but not the UK.
Many technical disciplines are transferrable and new entrants to the UK development market often bring very high levels of construction skill as well as experience of complex projects. The main challenge these new players face is largely the same set of barriers that face any new UK developer. In a busy construction market the major contractors, given the choice, will always work with existing customers rather than chose a new one with whom they are unfamiliar and who has no history of working in this country.
Add to this the typical corporate structures around development projects which are often held in special purpose or single asset companies and contractors see cash flow and covenant risk. In an industry where cash flow is so important, chasing an overseas client for payment is an unattractive prospect for a building contractor.
Where overseas developers have sought to avoid this by bringing their own construction businesses here, they face a similar set of issues with the construction supply chain. Its primary business relationship is with the large domestic contractors so it will always favour those established relationships than the uncertainty of a new overseas client.
So how can overseas investors and developers gain access to the UK construction market? The most effective strategies are based on either buying a UK building contactor that will bring with it all the supply chain relationships the project needs, or by working with UK development experts who know the market and the key players so are able to configure development projects in a way that will attract the engagement of the UK construction industry.
We have been involved in a number of developments recently where the careful organisation of the client side team and the use of procurement and delivery strategies that balance risk and reward, while at the same time giving enough confidence about the developer’s performance, has allowed our overseas clients to access the best of UK construction resources to build out their projects. This is a highly flexible arrangement and doesn’t require the significant investment needed to buy into the UK industry by acquiring a building contractor.
Construction, Developers, Investors, Project Management,
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