NuGen Properties

Turner & Townsend forecasts 3.5% tender price inflation for this year

Turner & Townsend forecasts 3.5% tender price inflation for this year


Turner & Townsend has forecast that real estate tender price inflation (TPI) will settle to 3.5% in 2023 before falling to 2.5% through 2024.

For infrastructure, TPI is anticipated to be 5.5% over 2023 and soften slightly to 5.0% through 2024. Infrastructure tender price is higher partly due to big ticket public sector projects like HS2.

Turner & Townsend’s Winter 2023 UK Market Intelligence (UKMI) report notes that the UK economy is edging closer to recession. It cites growing uncertainty in contractors’ pipelines and latest forecasts from the Construction Products Association (CPA) this week predicting that activity may fall by as much as 4.7% in 2023.  

However, pockets of growth may maintain high tender pricing from contractors in specific sectors such as industrial development and infrastructure through 2023.  

And despite falling for only the second time in 27 months in October 2022, the cost of construction materials and components are still 44% higher than pre-covid levels. These elevated costs could remain for as long as energy prices stay high and sterling is undervalued, the report says.

The perennial skills shortage is also buoying labour costs. The Royal Institute of Chartered Surveyors’ Building Cost Information Service suggests that labour costs may increase by up to 8.1% in 2024.

Martin Sudweeks, UK managing director of cost management at Turner & Townsend, said: “We’re facing a complex economic situation and we should be careful of assuming the rules of past recessions will be the case this time around – or that they will impact all sectors and projects similarly. Clients will need to consider what the economic situation means to their projects based on factors such as size, value and geography.

“Elevated costs still pose a significant risk to programmes both in the procurement and construction phases. Teams should take the time to ‘road-test’ contracts and build in assurance mechanisms, especially in uncertain environments.  It’s also important, however, to share project risk pragmatically along the supply chain to mitigate the impact of soaring insolvencies.” 

He added: “While the scale and duration of the potential recession are still unclear, we know the construction sector needs to invest in building its long-term resilience to aid recovery.  Innovation and productivity can fall by the wayside when times are difficult, so we need to be disciplined in prioritising that investment in the coming year – from putting data at the centre of all of our projects to make informed decisions, to making better use of modern methods of construction. Though we face continued pricing and capacity challenges; with a long-term, pragmatic view, focusing on efficiencies, understanding our supply chains and potential risks, we can build our resilience and a better road to recovery.”

The full report can be found at ukturnertownsend.viewer.foleon.com/market-intelligence/ukmi-q4-2022-winter/.

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