Tender price update

Transcription

Tender price update
Tender price update
United Kingdom - Q1 2015
To date we have seen steady, if modest, consumer-led
economic growth. However, the timing of our return to
sustained productivity growth remains uncertain.
Construction inflation contrasts with
the wider UK picture.
Consumer Price Index (CPI) has fallen to a
new low, and could turn temporarily negative.
Contrastingly, construction Tender Price Index
(TPI) of 4-5% exceeds long-term averages.
UK tender price inflation by region (%)
Region
2014 2015 2016 2017 2018 2019
East Anglia
3.3
4.0
4.3
4.6
4.2
4.3
East Midlands
3.2
3.8
4.2
4.4
4.0
4.1
West Midlands
3.2
3.9
4.3
4.5
4.1
4.2
North East
3.1
3.7
4.1
4.3
3.9
4.0
Yorks & Humber
3.2
3.9
4.3
4.5
4.1
4.2
In construction, most commentators forecast an
overall rise in activity over the next 12-months,
although at a slower pace in the medium term
due to election uncertainty. London and South
East continues to dominate, but with other
regions showing growth, such as North West and
Yorkshire & Humberside.
N West
3.3
4.0
4.4
4.6
4.2
4.3
N Ireland
3.1
3.7
4.1
4.3
3.9
4.0
Scotland
3.4
3.8
4.2
4.0
3.8
4.0
Central London
5.4
5.0
5.2
5.0
4.6
5.0
South East
3.4
4.2
4.6
4.8
4.4
4.5
Private residential has led the way so far, helped
by sales price inflation of 16% in London and
7% generally. Toward 2018, construction growth
is expected to be more broad-based, with both
offices and infrastructure activity increasing.
South West
3.2
3.9
4.3
4.5
4.1
4.2
Wales
3.1
3.7
4.1
4.3
3.9
4.0
UK Average
3.7
4.2
4.5
4.6
4.2
4.4
Forecasts for UK growth are around 2.5%
through 2015 and slightly lower thereafter,
representing a softening from previous forecasts.
Supply chain pressures, risk and resource
issues will continue to affect tender prices and
procurement strategies until industry capacity
properly adjusts.
Our forecast provides guidance on the general level of tender price inflation,
based on major and medium-sized projects across all sectors of the market.
Project specific commercial factors can have a significant impact on the level of
pricing–size of scheme, attractiveness of scheme (e.g. complexity, location, risk,
etc), procurement route (e.g. single stage, two stage, negotiated) and keenness of
tenderers (e.g. local market dynamics, workloads, hot spots, realisable margins, etc).
Legal Notice: This report was prepared by Sweett Group Plc to generally inform readers on construction matters. This report
is therefore for general information purposes only and neither Sweett Group Plc nor any of their directors, officers, employees,
agents or other person acting on their behalf:
a) makes any warranty, express or implied;
b) assumes any liability with respect to the use of the information or methods contained in this report to any person or party.
Construction activity and
market outlook
Construction output fell 2.6% in January 2015 and new orders
also fell by 4.2%. Considering these figures with the earlier fall
reported in Q4 2014, the data suggests that construction activity
has tempered slightly after the upturn through 2013/4, and
may plateau. In fact, the reports reflect a fall in R&M work (by
6.3%). The new-work pipeline remains strong, especially new
build residential, infrastructure and commercial; with demand
spreading out from London into the Regions.
However, uncertainty of the post-Election conditions, has
introduced political risk into schemes, and this may cause
decisions to be deferred.
Experian and CPA are forecasting construction output growth, at
slightly lower levels than previously: almost 6% in 2015 and with
average annual growth thereafter to 2018 of around 3.9%.
BCIS suggests that construction output may rebalance to a lower
level of between 2.7% to 4.6% in the near term.
Construction companies remain busy, but are cautious about reinvesting too heavily, or becoming exposed to too much project
risk. There have been a number of notable examples of major
companies struggling to accommodate the legacy of increased
costs and low profit margins from work secured during the
downturn. The emphasis now is on profit rather than turnover.
Materials and
commodities costs:
BIS Index fell -0.6% in the
year, but large variances
reported: traditional
housing materials
increased; reinforcement
and steel down.
Labour costs:
Unemployment level down
to 6%; wage inflation
around 3%; high demand
for skilled labour in some
areas, notably London.
Inflation:
CPI currently 0%. Steep
fall in wholesale energy
prices and food.
Annual UK tender price inflation (%)
Insolvencies:
Construction industry
liquidations to Q32014
totalled 2,370; down 2.7%
on year to Q22014. UK
administrations lowest since
2004.
GDP
UK economy grew 0.5% in
Q42014 and 2.6% in the
year; the fastest annual rate
since 2007.
Private rented sector (PRS)
The development of Private Rented
Communities is one of the dominant growth
areas in UK construction.
Presently, around 4.4m households in the
UK live in private rented accommodation and
this is set to increase significantly, with up
to £10bn of institutional funds lined up for
investment in private rent, much of this from
overseas operators. Private rent has gained
great traction in recent years for a number of
reasons: changing life styles of people under
35 seeking flexibility of tenure; the structural
undersupply of housing against demand; and
rising house prices in relation to earnings.
A range of Government initiatives such as
The Build to Rent Fund, The Private Rented
Sector Housing Guarantee Scheme, and the
Affordable Housing Guarantee Scheme have
all been designed to get the market moving
and attract more investment in private rent,
especially from large institutional investors,
pension and insurance funds.
Delivery of new, dedicated rental stock is
very different from traditional apartments for
market sale.
The rented sector is looking for capital growth
to develop longer tenancies by building a
stronger engagement between landlord and
tenant; the provision of enhanced communal
facilities; and 24/7 support services to
maximise rental levels and minimise void
periods.
The key to procurement is the holistic
consideration of life-cycle and the utilisation
of modern methods of construction to create
a robust, efficient and cost effective product.
Some recent successes
PRS
Sweett Group has a strong UK-wide multi-disciplinary PRS team with backgrounds covering both public and
private sector. This breadth of skills gives us the flexibility to respond to the PRS market as it evolves to reflect
the specific objectives of the many disparate organisations entering the market and the different demographic
groups being targeted. There is no one-size-fits-all solution. Recent wins include:
9-42 The Broadway, Ealing
Sweett Group is supporting Londonewcastle,
as cost consultant, to develop this landmark
development in Ealing. On completion, this
Allies & Morrison designed scheme will provide
a unique mix of over 200 apartments for sale
and private rent, integrated with a range of
boutique retail units, set around an open mall.
Trinity, Manchester
Billed as the first large PRS scheme to be
built in Greater Manchester, Trinity is a major
development for Fred Done’s company FICM,
close to the River Irwell. Sweett Group is
cost consultant. The project comprises 380
homes in two towers, townhouses, commercial
space, under-croft car parking and a grade
II-listed pub. The scheme has recently received
planning permission.
For further information please contact:
Derek Pitcher
Managing Director
Sweett Group, 60 Gray’s Inn Road,
London, WC1X 8AQ
T 020 7061 9250
E [email protected]
www.sweettgroup.com