Arcadis upgrades tender price forecast

Aaron Morby 2 years ago

The gathering industry recovery has prompted cost consultant Arcadis to upgrade its construction inflation forecast.

The cost consultant had expected to see cost deflation seen on building projects last year continue this year.

But strengthening activity in the building sector and rising products and materials prices has prompted a rethink to forecast a modest rising in building tender prices this year of around 1%.

The London building market, which was also forecast to experience 2% tender deflation is now expected to see stable tenders.

Forecasters have held their inflation predictions for infrastructure this year. But with evidence of steeply rising civils forward orders in the sector 2022 has been upgraded to 4%.

Tender price inflation
2020 -3% -4% 0%
2021 1% 0% 2%
2022 2% 2% 4%

Agnieszka Krzyzaniak, Market Intelligence Lead at Arcadis, said with the roll-out of a vaccination programme and a final Brexit deal giving some measure of clarity, there is increasing evidence that conditions are improving, and inflationary growth is returning as the pressure to secure short-term work looks set to gradually ease.

She said: “We are not out of the woods yet. But while we can’t afford to be complacent, it has been encouraging that even in the face of such difficult conditions, the construction industry has continued to deliver.

“Our inflationary forecast is backed by growth and, despite the temporary disruption in materials supply, we can expect a gradual return to normality as the market rebalances itself from 2022 onwards.”

Krzyzaniak added that one of the unexpected side-effects of the pandemic had been the shortage of materials and components, thanks mostly to disruption in global supply chains.

“This is likely to filter into project costs and may potentially result in the need to reschedule works during the first half of 2021,” she  cautioned.

Tender price pressures
Short-term (Q1 2021- Q3 2022) Long-term (Q3 2022 onwards)
Inflationary factors
Expansion of activity
Labour shortages from post-Brexit points migration system
Productivity still impaired by COVID-19
Increased costs of logistics for materials imports
Increase in material costs due to shortages
Recovered demand from the private sector
Deflationary factors
The need to secure short-term workloads
Subdued demand from private sector
Productivity gains due to digitalisation and standardisation
Sterling appreciation

Mark Langdale, UK Government Sector Director at Arcadis, said: “Government investment commitments are aimed at well-established, long-term programmes.

“Turning the pipeline into on-site projects will be pivotal in supporting construction sector recovery and wider economic growth throughout 2021-22.

“The Government will want to see evidence that the industry is equipped to deliver.

“Investment in innovation and transformation will be key, and the publication of the Government’s Construction Playbook has been integral to articulating this vision.

“We need to act on its recommendations and support the transformation of construction into a more profitable, sustainable, and resilient industry.”

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