The latest round of tender price forecasts have been largely upgraded to account for the growing positive sentiment in the construction industry.
Tender price inflation will turn a corner next year, according to the latest consensus on growth forecasts.
Tender price forecasts from five of the UK’s top cost consultant, quantity surveyor and project management businesses show rises across the UK of an average 2.3 per cent next year and 3.3 per cent in 2015.
It is widely agreed that the industry has turned a corner – with the majority of our forecasters upgrading previous expectations to account for a more positive sentiment.
“At the start of 2011 there was some optimism that was relatively short-lived, but finally there is the consensus of prospects for more work,” says Sweett Group senior director Andrew Moore.
Mace managing director of cost consultancy Chris Goldthorpe says: “Next quarter will be important for the industry. There is a slight nervousness but people are looking at opportunities to start construction again and this will lead to cost escalation.
“Commodity prices have been fairly stable in recent times. There are mixed messages out there, however, and people are not willing to secure prices on certain materials.”
London remains the focus
Tender prices will accelerate at a faster pace in London than the rest of the UK. The forecasts show an average 3 per cent rise in the capital next year and 3.5 per cent for 2015.
“London and the South-east are driving the industry out of recession,” Mr Moore says. “During the downturn London was fairly buoyant – it wasn’t marvellous but a lot better than the regions.”
He adds that the capital is “a magnet” for inward investment from world markets.
“The whole country is livening up, particularly in the housing market – nationally that is where the drive is”
Chris Goldthorpe, Mace
But there is also positive movement across the country compared with previous quarters. “The whole country is livening up, particularly in the housing market – nationally that is where the drive is,” Mr Goldthorpe says.
“Within infrastructure, prices outside the capital will start to move, but they have a lot further to come than London.”
Nervousness around rapid recovery
Despite agreeing that the industry has turned a corner, the forecasters detect a slight degree of nervousness.
“There is still a focus on the cost of things,” Mr Moore says. “People are very cautious and trying not to talk things up too widely. The most dangerous times are when you have rapid adjustments.”
“While demand has been much more positive, everything is starting from a low base”
Andrew Moore, Sweett Group
He cites the commercial sector as having “some way to go”. “While demand has been much more positive, everything is starting from a low base,” he says.
“There is a one to two-year gestation period for investment to come back, though some areas, such as central London, have demand.”
Mace believes contractors can start moving away from the competitive tendering seen in the industry over the past few years.
“Contractors are going to be more selective,” Mr Goldthorpe says. “There is a move away from single-stage and into a two-stage process, which will protect from price rises that no one really knows about.”
Mr Moore agrees: “Throughout the recession, investors had been able to drive through fixed-price design-and-build contracts, but now contractors have become more risk-averse.”