Tender prices expected to surge by 2020

money-skills-300x187Tender prices are expected to be a third higher than the pre-recession peak by 2020 according to a new report from RICS’ Building Cost Information Service (BCIS).

The report says tender prices have already gone up by 0.8% in the first quarter of 2015 compared with the previous three-month period, and by 4.5% on Q1 2014 figures. While annual tender price increases are expected to moderate in 2015 as contractors begin to cope with increasing workloads, the following years leading up to 2020 are expected to see increases in both wages and material costs.

Materials prices fell by 0.4% in the first quarter of 2015 compared with the previous quarter, but remained unchanged compared with the first quarter of 2014. Little movement is expected in materials prices in the remainder of 2015, however it is anticipated that prices will start to rise again in 2016, with an increase in the year to Q2 2016 of 2.3%. Over the following years, as both the construction and wider economies improve, BCIS says upward pressure is likely to increase material prices from 2.6% in the year to Q2 2017, to 4.1% in the year to the second quarter of 2019.

Wage costs are also expected to increase annually by 3% to 4% over the next five years, meaning total input costs are set to rise by a similar amount.

It is anticipated that strong growth in new work output in 2015 and in to 2016 will help to offset these costs, with increases of 5% predicted in both years. BCIS estimates total new work output will surpass the pre-recession peak of 2007 during 2016, and will be in the order of 15% higher than the 2007 peak by 2019.

Peter Rumble, head of forecasting for BCIS, said: “The UK construction industry is showing strong signs of growth, this is reflected in the BCIS forecast which shows strong increases in new work output. As a result, over the first year of the forecast period, tender prices are expected to rise by 4%, with relatively moderate increases in input costs. Moving forward, with workloads continuing to grow, and with rising pressure from input cost increases, tender prices are expected to rise between an annual 4.5% and 6% over the remainder of the forecast period.”

Over the five year forecast period the BCIS says that new work output will have grown by around 20% since 2014, largely due to continued demand in the private housing sector, private industrial sector and private commercial sectors.