Turner & Townsend’s latest UK Market Intelligence Report (UKMI) forecasts real estate and infrastructure tender price rises in 2022 of 4.5% and 4.0% respectively, up from 3.5% for both just three months ago.
Long term forecasts also remain high at up to 5.0% as far ahead as 2025.
Inflation forecasts are rising despite cooling growth rates of construction output and are instead led by material and labour shortages, the firm’s economists reckon. Annual construction material costs from the Department for Business, Energy & Industrial Strategy (BEIS) rose 22.7% to November, and the Office for National Statistics reports that construction vacancies rose by 43% between the second and third quarter of 2021.
Turner & Townsend suggests that subsequent pressure on labour costs, alongside the material price rises, puts the industry in a vulnerable position. This is reflected in the level of insolvencies in the sector, which were up 19% in Q3 2021 according to the Insolvency Service – translating to a quarter on year increase of 80%.
The Turner & Townsend report says that the construction industry needs to drive efficiency and productivity improvements to absorb the supply-side cost increases.
Martin Sudweeks, UK managing director of cost management at Turner & Townsend said: “UK construction has helped to power the economy through the pandemic and out the other side. But 2021’s recovery in construction output and demand has come at an inflationary cost, with global supply chains remaining disrupted and labour and material prices are under strain. The roots of this inflation are no secret to this industry, if we want to maintain the trends in growth we have seen and continue construction’s role as the economy’s powerhouse then we need to enact change, and fast.
“One route to achieving this is by driving better productivity via digitalisation, MMC [modern methods of construction] and an outcomes-focused approach to major projects and programmes. Industry adoption of these strategies has been piecemeal for too long, particularly in digital, despite its potential for transformational change. Construction businesses that embrace the digital tools at their disposal and hold fast to a long-term programmatic approach will be those that should prosper in the months and years to come.”