Confidence in recovery and forecast growth in commercial workloads mean conditions for increasing tender prices are now firm, according to the latest forecasts from Gardiner & Theobald.
Gardiner & Theobald has upgraded its forecasts for annual tender price rises between 2014 and 2016, but London and the South-east remain ahead of the rest of the UK.
Tender prices across the UK are now expected to grow by 3 per cent in 2014, before further growth of 3.5 per cent and 4 per cent over the following two years.
“Within 12 months there has been a real step change of positive growth and recovery is looking much more sustained,” says Gardiner & Theobald partner Gavin Murgatroyd.
Confidence means tender price inflation
He says conditions are now firmly in place to promote a spike in tender price inflation, including rising demand, supply constraints in resources, increased wage pressures and more selective tendering strategies from contractors.
“Supply is constrained and lead times have gone up,” Mr Murgatroyd says, with Gardiner & Theobald highlighting materials such as concrete frames, cladding and envelope as trades with significant rises in lead times.
“In addition, contractors increasingly don’t want to take on the risk of single-stage tendering – it’s very much shifting to a seller’s market.”
Tale of two cities
London and the South-east remain the dominant regions, according to the Gardiner & Theobald forecasts.
The capital is set for tender prices to rise by 4 per cent this year before growth of 4.5 per cent in each of 2015 and 2016. The South-east forecasts mirror those for London, though are slightly lower for 2014, at 3.5 per cent.
“Contractors increasingly don’t want to take on the risk of single-stage tendering – it’s very much shifting to a seller’s market”
Gavin Murgatroyd, Gardiner & Theobald
“The regions are around 12 to 18 months behind and public austerity is still biting,” Mr Murgatroyd says. “It really is a tale of two halves – London and the South-east are powering on.”
Despite the resounding growth of the housing market across the industry, Mr Murgatroyd considers the amount of activity the sector generates as overstated compared with others. “We’re still not building what we need,” he says.
Meanwhile the commercial sector has seen a “virtually exponential growth in enquiries after five years of restraint”, with the growth of last year set to peak during 2014 and 2015.
London’s forecast growth is thus largely driven by improvement in the private commercial market, with assumptions of a continually strengthening economy and demand being sustained.