London tender prices ratchet up

Aaron Morby 8 years ago

Cost consultant EC Harris has upgraded its tender forecasts to keep pace with the recovery in London.

An uplift in workloads and suppliers prices has seen the cost consultant forecast 0.5% tender price inflation for the capital in the last quarter of the year.

Previously 2013 was expected to see construction costs remain flat.

The firm said that major contractors were now reporting rising prices on some structures and envelope packages.

The survey also shows growing momentum in the office sector in London and an increase in ‘speed to market’, from acquisition to completion, as developers pursue scarce letting opportunities.

Despite growing optimism developers are remaining risk averse preferring to secure large pre-lets to obtain project finance, while also passing design and delivery risk to contractors through design and build contracts.

EC Harris warns of capacity constraints ahead, with the potential pressure on supply following four to five years of slow demand and lower capacity leading to delivery issues and price impacts.

It said the strength of the rebound has caught much of the industry by surprise with extended delivery times for bricks and blocks, and increases in day rates of up to 20% for some labour.

Price pressure is most evident in residential construction, and the niche London Super Prime market, where scarcity is felt most among high-end finishing trades.

EC Harris said it estimated tender price inflation in London to rise to 4% for 2014.

Regionally, the recovery in housing has stemmed expected price falls, with tender prices expected to remain stable to the second quarter of 2014 before a moderate rise of around 2.0% in the second half 2014.

EC Harris maintains its inflation forecast for the infrastructure sector at 3.2% for 2014.

Simon Rawlinson, EC Harris head of strategic research and insight, at EC Harris said: “While the move towards an upturn in construction is a welcome relief , as the market moves to recovery and more normal trading conditions, clients need to consider ways to engage with the supply chain to mitigate wider risks associated with an upturn, including price uncertainty and business failure.

“Potential solutions include the positioning of the project in the market, the client’s buying strategy and a change in the balance of risk and reward for the supply chain.”

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