Tender prices are set to show a solid increase, according to the latest Economics Survey by EC Harris. With workload levels still high, shortages of skilled labor, and cost inflation in key materials, building tender prices are forecast to increase by 4.8% over the year, and 4.7% the following year.
In London, although there has been a slowdown in commercial offices, the residential sector appears to be buoyant, with full order books. With orders for the Olympics schemes starting to build, it continues to be a tough time to find contractors. Tender prices are set to rise by 6.5% over each of the next two years as the level of workload continues to lead to high levels of construction inflation in London. Longer term tender prices in London are forecast to rise by 6.5% to the end of 2010, and reduce only slowly thereafter.
Commenting on the figures, Paul Moore, Head of Cost Research at EC Harris, said: "The banking issues in the USA and the latest 'credit crunch' means that although base rates were cut in December, the cost and availability of funding to financial institutions has become more constricted. As a result more speculative developments are being re-assessed. A good number of major schemes have however already secured funding, and with many contractors having full order books for the next 2-3 years, tenders are set to plough ahead."
A dramatic fall in construction new orders, 13% in 3rd quarter of 2007, has come as a blow to the industry. The private commercial sector, with the unsettled state of the financial markets and banking sector, saw the biggest drop of 18%.
One of the consequences of this appears to be a reduction of new commercial enquiries, the perceived cooling of tenant demand and the fact that funding availability has slowed. Banks and financial institutions are being more prudent about committing to capital expenditure. Also, with the increased likelihood of mergers between banks, the banks' current spending plans are being restricted.
Source: EC Harris