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Industry leaders have been caught off guard by Lendlease鈥檚 decision to put its UK construction business up for sale, with some warning it could lead to less competitive pricing on big schemes.

The New South Wales-based multinational announced on Monday that it intended to sell its overseas construction arms by the end of 2025 so it can focus its operations on home turf in Australia.

A spokesperson for Lendlease said the UK construction arm, which employs around 700 people, was only told on Monday that it was being put up for sale.

Although an open letter from shareholders had recommended the move earlier this year, one industry source said such an 鈥渆xtreme鈥� decision had come as a surprise.

鈥淒id anybody anticipate this? I don鈥檛 think so. I don鈥檛 think anybody anticipated something this significant,鈥� they said, adding: 鈥淚 don鈥檛 think any of us thought that they would actually go as far as they have done.鈥�

Core Five partner James Clark said the announcement had come as 鈥渜uite unexpected big news鈥� which had not been anticipated by the cost consultant, which is working with Lendlease on the 拢120m 90 Long Acre scheme in London鈥檚 West End.

A 47-page strategy document released by Lendlease on Monday outlined plans to remove all overseas management structures within the next 12 months, with the group鈥檚 investment business to be the only part of the firm to remain active outside of Australia.

It blamed low overseas construction margins of just 0.6% and 鈥渙verweight鈥� projects for the move, which it said would free up AD $4.5bn (拢2.35bn) of capital in order to pay down debt and realise value for its shareholders.

But there have been questions over who would buy a business that Lendlease bosses have admitted is faced with serious issues, and fears over how the construction sector would be impacted by the loss of such a large player.

Sellar development director Richard Garvey said it could result in a smaller pool of tier ones for clients on major schemes in a market already restricted to just four or five firms, including Multiplex, Mace, Skanska and Sir Robert McAlpine.

鈥淭his further narrows the options on selection of main contractors to tender on major projects, particularly on fixed price work,鈥� he said.

鈥淭his narrowing could lead to less competitive pricing on some projects. We think this will push further our need to work closely with the supply chain at increasingly earlier stages of our projects.鈥�

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Clark added: 鈥淚f we lose a major player from the market, in terms of the tier ones, will it affect competitiveness? Possibly. 

鈥淓verybody who鈥檚 tendering a project at the moment, and has Lendlease on their list might feel they鈥檝e got one less on their list now.鈥�

He said Core Five was now weighing up the impact a Lendlease exit would have on its clients, 鈥渨hether they have Lendlease on site, or whether they are going through a tendering or negotiation process with Lendlease, because it will inevitably affect the dynamic of those relationships.鈥�

Clark added the sale could be an opportunity for a firm wanting to break into the UK market, although this would mean picking up a business that has 鈥済ot a few problems鈥�.

Another industry source described the decision to announce the restructure without informing the market of a potential buyer as a 鈥渇ire sale鈥� and a 鈥渧ery weird way to sell a business鈥�.

鈥淚 can鈥檛 imagine who on earth would buy the UK construction company. I can鈥檛 imagine any of the Chinese companies would be interested,鈥� they said, adding that a deal would come with a lot of liability for a buyer to take on.

The move comes after four years of steadily dropping share prices with the firm鈥檚 stock having lost around half of its value since the pandemic.

Delays have hit several of the firm鈥檚 biggest schemes in the UK including CO-RE鈥檚 拢700m ITV studio redevelopment, which has been stuck in planning limbo for two years, the 拢429m 120 Fleet Street job in the City of London which has been stalled by ongoing discussions with its Chinese developer and the 拢1.9bn Smithfield scheme in central Birmingham which has undergone several redesigns. 

Lendlease chairman Michal Ullmer admitted that security holder returns had been 鈥減oor鈥� amid a series of structural challenges and a prolonged market downturn.

鈥淲e need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers,鈥� he said.

鈥淲e have announced the blueprint to position Lendlease for success, focusing on our core strengths and competitive advantages. We have thought very carefully about the necessary strategic refocus and made some tough decisions.鈥�