While the divide between building and civils has started to emerge already, consultant Arcadis warns this will widen in 2021.
In the cost consultant’s latest tender forecast, Arcadis is predicting 3% deflation this year in building costs, while infrastructure can look forward to 2-3% growth per annum for at least the next two years.
Simon Rawlinson, Head of Strategic Research at Arcadis, warned the second wave of Covid-19, combined with a looming final Brexit date of 31st December, would further dent already low investor confidence in property further suppressing demand for building in the near future.
The outlook for infrastructure contractors is entirely different. Several cyclical investment programmes are coming to fruition, such as AMP7 in the water sector, CP6 in rail and RIS2 for highways.
These are setting infrastructure up for a growth rate of almost 30% in 2021 and for steady rises after.
For building contractors, industrial and commercial sub-sectors are not expected to recover to 2019 levels until 2022, and public sector workload now looks at risk thanks to the cancellation of the three-year Comprehensive Spending Review.
Even housing faces headwinds in 2021 with changes to the Help to Buy scheme and withdrawal of cuts in Stamp Duty.
Rawlinson said that the ongoing economic and political challenges would continue to have an impact, so it was no surprise that confidence levels across the sector hang in the balance.
“The differences we’re seeing in the pace of recovery between sectors underlines the scale of the challenge.
“Implications include an increase in competition for workload across the buildings sector, as well as a shift of resources towards infrastructure.
“To ensure an ongoing recovery, it’s therefore critical for businesses to have strong resiliency measures in place, not just when it comes to managing the second wave of Covid-19 and its consequences, but also taking into account the fact that Brexit will be happening simultaneously.”
Arcadis’ Autumn tender price forecast
- Arcadis has maintained its deflationary forecast of -3% for building tender prices regionally, with a 4% drop in London in 2020.
- The forecast was adjusted for London in 2021 to -2%, illustrating the slower return of demand.
- Better than expected growth in infrastructure resulted in an upgrade to 2-3% growth per annum in 2021 and 2022 respectively.
In the long-term, Arcadis predicts a return to above-trend inflation for all sectors from 2023 onwards, mainly driven by constraints in the labour market.
The timing will depend on how quickly demand levels pick up.
With high levels of risk associated with Brexit and Covid-19, Arcadis warns that planning for recovery will be particularly difficult.
This made it essential that businesses continue to explore measures aimed at shoring-up overall business resilience, including how they engage with the supply chain, as well as reviewing risk transfer mechanisms and delivery strategies to understand and mitigate any impacts from unexpected delays or shortages, said Rawlinson.