Tender prices are forecast to accelerate in their rate of growth, but largely to offset the rise in building costs as the market recovers from steep falls during the recession.
The latest Market Briefing from Building Cost Information Service reveals that in Q3 2013, tender prices fell by 0.8 per cent compared to Q2, but were 6.3 per cent up on Q3 2012. The large annual rise is coupled with the significant fall seen in Q3 2012, owing to volatility throughout that year.
But BCIS forecasts tender prices to rise consistently over the next five years, with expectations of an increase of 3.8 per cent in the year to Q4 2014, followed by a 4.1 per cent rise in 2015 and stronger growth up until 2018.
BCIS information services manager Peter Rumble says: “All bar one of the contractors in our survey say that they expect tender prices to increase over the next six months. Levels have been unsustainable and contractors need to kick back.”
Mr Rumble says that the latest research contains the first survey where no contractor reports that it expected tender prices to fall.
Input costs are expected to increase. Mr Rumble highlights a pick-up in wages though there is currently less pressure on materials prices “domestically or abroad”.
It is generally accepted that the industry is now in recovery, but this has to be taken into context from the low bases we saw during the recession, says Mr Rumbles.
“One of the surprises [for recovery] has been the commercial sector, though we need to bear in mind that this is following a 12 per cent fall in 2012, so that increase is exaggerated. London is recovering faster than any other region”
Meanwhile, housing output is expected to remain consistent. “Private housing will hold up, but we are so short of supply that even the forecast growth is not going to meet government targets.”
BCIS forecasting a rise of 2.6 per cent in building costs in 2014, with a marginally faster growth of 2.8 per cent next year.
“Tender prices forecast rises are currently ahead of those of building costs but not hugely so. They are forecast to gain strength as we anticipate contractors to recoup their losses,” says Mr Rumble.
“But realistically, building costs are predicted to rise so these will offset large forecast rises in tender prices.”