Tender prices forecast to rise by 6% per annum in the next 5 years

Tender prices rose by 0.8% in 1st quarter of 2015 compared with the previous quarter, and by 4.5% compared with the same quarter in 2014, according to the latest report from RICS’ Building Cost Information Service (BCIS).

The BCIS report predicts that annual tender price increases will moderate in 2015, as contractors start to cope with increasing workloads.

Materials prices fell by 0.4% in the 1st quarter of 2015 compared with the previous quarter, but remained unchanged compared with 1st quarter of 2014. Little movement is expected in materials prices in the remainder of 2015, with domestic and Eurozone inflation very low.

However, it is anticipated that prices will start to rise again in 2016, with an increase in the year to 2nd quarter of 2016 of 2.3% – the increase being exaggerated by a fall in prices to the 2nd quarter of 2016. Over the following years, as both the construction and wider economies improve, upward pressure is likely to increase materials prices from 2.6% in the year to the 2nd quarter of 2017, to 4.1% in the year to the 2nd quarter of 2019.

With wages costs also increasing by an annual 3% to 4% over the next five years, total input costs are set to rise by a similar amount.

It is anticipated that strong growth in new work output will continue in to 2015 and 2016, with increases of 5% predicted in both years. 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.

Over the five year forecast period the BCIS estimates that new work output will have grown by around 20% since 2014 – this largely due to continued demand in the private housing sector, private industrial sector and private commercial sectors. However, growth is expected to moderate in 2017, to 3%, rising faster at a rate of 4% in 2018 and 2019.

Peter Rumble, head of forecasting, BCIS, said: “The UK construction industry is showing strong signs of growth, this 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.”

The full report, ‘BCIS Quarterly Briefing August 2015’, is available online as part of a subscription to the BCIS Online, a service run by BCIS.

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