Tender prices are set to rise yet again, according to the opinion of Construction cost consultant Turner & Townsend.
According to the latest UK Market Intelligence Report (UKMI) , real estate and infrastructure tender prices in 2022 are expected to be 4.5% and 4% respectively, which shows an increase from 3.5% for both, from just three months ago, with 5.0% being the long-term forcast for 2025.
Inflation forecasts are rising in spite of the cooling growth rate of construction output, and are being led by labour and material shortages.
Construction vacanices rose by almost 43% during the second and third quarter, according to the Office for National Statistics, with annual construction material costs from the Department for Business, Energy & Industrial Strategy (BEIS) rising 22.7% up to November.
Turner & Townsend suggests that subsequent pressure on labour costs, alongside the material price rises, puts the industry in a vulnerable position. This is reflected in the level of insolvencies in the sector, which were up 19% in Q3 2021 according to the Insolvency Service – translating to a quarter on year increase of 80%.
The Turner & Townsend report says that the construction industry needs to drive efficiency and productivity improvements to absorb the supply-side cost increases.
UK managing director of cost management at Turner & Townsend, Martin Sudweeks, said that UK construction has helped to power the economy through the pandemic and out the other side. But 2021’s recovery in construction output and demand has come at an inflationary cost, with global supply chains and labour and material prices both under strain. If we want to continue to see the increases in growth and continue construction’s role as the economy’s powerhouse we must establish change and quickly.
It is a widely held view that to achieve this better productivity will be via digitalisation, MCC (modern methods of construction) an outcomes-focused approach to major projects and programmes. Construction businesses are encouraged to adopt these digital tools and embrace a long term programmatic approach in order to prosper in the future of the industry.