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General building costs to pick up as tender prices bottom out

General building costs will increase through to 2018 as wage inflation grows and materials prices pick up pace, according to the latest BCIS research.

General building cost rises are set to accelerate, according to the BCIS’ latest Quarterly Briefing.

BCIS general building costs forecast Q1 14-Q1 18

Source: BCIS

Having risen by just 0.3 per cent in the final three months of 2012 compared with a year before, the BCIS predicts a rise in general costs of 1.6 per cent in the year to Q1 2014, with subsequent rises of 2.8 per cent, 3 per cent and 3.6 per cent over the following three years.

Materials and pay set to strengthen

The forecast accounts for the slow rise in materials prices – 1.5 per cent in Q1 2014 – followed by stronger gains of 2.6 per cent in each of the following two years. Wage demand will also strengthen over the next five years, having been stagnant.

Alongside infrastructure, private housing and industrial are the sectors expected to perform well this year, while commercial is set to struggle. “Offices are very dependent on business and consumer confidence,” Mr Rumble says.

“You may well see London doing better. In the days before the recession, a number of developers would have built offices speculatively, rather than purpose-built, in the hope that they’d be let, but they would not risk this in the current climate.”

Tender prices bottoming out

The BCIS also forecasts a steady rise in tender prices, as Mr Rumble says the currently yo-yoing figures are indicative of a “bottoming out”. Tender prices were said to have risen by 6.4 per cent in Q4 2012 compared with the previous quarter, though this is thought to be a blip.

BCIS tender price forecast Q1 14-Q1 18

Source: BCIS

“There are signs that some contractors are saying ‘we cannot take anymore’,” Mr Rumble says, adding that some are being more selective about what tenders they are putting in for.

Indeed, tender prices at the end of the forecast period will only be around 7 per cent higher than the previous peak in 2007. “Tender price rises are driven by costs principally, but could include some basis for profit margin,” Mr Rumble says.

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