The rising cost of materials and a resurgence in demand means that prices could rise rapidly and inflation could become a “defining feature” of the market over the next three years.
That’s the warning from Arcadis, which said the window of opportunity for investment in “shovel-ready” schemes is finite and “could close very quickly”.
In its Spring 2021 Market View, which looks across sectors and regions to offer a tender price forecast for clients, Arcadis said there were signs that confidence was returning to the UK construction market.
Arcadis found that the estimated value of new contracts in Q1 2021 exceeded £23bn; a 2% improvement on the same period the previous year.
But recovering demand has coincided with increasing pressure around the availability of construction materials, and concerns regarding long-term capacity in the supply chain. Arcadis warned that stress on the supply chain combined with a strong pipeline of new orders meant there “may be less spare capacity in the supply chain than previously thought”.
Arcadis predicted a “major acceleration” in price increases for infrastructure, and a slightly more modest expansion in the buildings sector in 2022.
It said that infrastructure in particular is susceptible to pressures around materials availability and a shortage of specialist skills and predicted price increases of 3% and 5% for 2021 and 2022 respectively.
For the buildings sector, growth in the regions will be higher than in London. Arcadis maintained its forecast of a 1% price increase for 2021, with delays likely to translate into a steeper pace of growth from 2022 onwards, reaching 5% by 2025 as the market recovers.
Agnieszka Krzyzaniak, market intelligence lead at Arcadis, said: “The conditions for investment are good, but with so many challenges on the horizon, the situation can change abruptly. At the moment, there is still some spare capacity available, but the shortages of construction materials create inflationary conditions that have already begun to outweigh any deflationary factors. Clients need to move quickly to take advantage of this window of opportunity. Any delays increase the potential exposure to much higher construction costs than initially planned for, as higher inflation becomes the new normal.”
The full UK Spring Market View is available to download here.
