Tender prices are likely to rise slowly over the coming year and remain ahead of building costs as the market bottoms out, according to the Building Cost Information Service (BCIS), part of the RICS.
Though its latest survey shows tender prices fell by 1.7% in Q1 2013, compared with the previous quarter, this follows a 6.4% rise in the previous quarter.
However, the fall in tender prices recorded in first quarter 2013 is not seen by BCIS as a return to falling prices, but more of a settling down at the higher level seen over the last two quarters.
BCIS information services manager Peter Rumble said: “Latest data suggests tender prices have bottomed out and are anticipated to rise slowly over the first year of the forecast period, slightly ahead of building costs.
“As demand improves towards the end of the forecast period in 2018, tender prices are expected to rise more steeply, as contractors in an improving market try to recoup some of the losses incurred over the recessionary years.
“While new work output is expected to fall again in 2013, although to a lesser degree than in 2012, we anticipate a return to modest growth in 2014, with the recovery gathering momentum over subsequent years.
"While new work output is expected to fall again in 2013, we anticipate modest growth in 2014, with the recovery gathering momentum over subsequent years."
Peter Rumble, BCIS
“Strong growth is expected in the infrastructure sector, over the forecast period, with the government investing £70bn into infrastructure projects between 2015 and 2021. The initial recovery will also be driven by the private housing sector partly as a result of various government initiatives designed to boost the housing market.
“The forecast for the construction industry over the five years should be viewed in the context of the economy as a whole, which is not expected to see a return to its long-term average growth level until 2016, at the earliest.”
The BCIS Quarterly Briefing – Five Year Forecast of Building Costs and Tender Prices shows that the total volume of construction orders remained unchanged in Q1 2013 compared with the same quarter in 2012, but fell by 10% compared with the final quarter of 2012.
Comparing Q1 2013 with Q4 2012, the public non-housing and the private industrial sectors saw double digit increases, with a rise in orders of 10% and 12% respectively.
Total construction work output for Q1 2013 fell by 2% compared to the previous quarter and by 6% compared with a year earlier. Additionally, new work output fell by 3% in Q1 2013 compared with Q4 2012 and by 8% compared to a year earlier. Comparing Q1 2013 to the same period for 2012, all new work sectors experienced a fall in output, with the exception of the private industrial sector where output increased by 7%.
The report also shows that materials prices remained unchanged in Q1 2013 compared with both the previous quarter and a year earlier.
For the construction sector as a whole, average weekly earnings (AWE) fell by 1.3% compared with a year earlier. Earnings fall short of AWE across the economy as a whole which saw growth of 0.8%.
