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