The Building Cost Information Service (BCIS) has projected significant shifts in construction costs over the next five years.
- Building costs are anticipated to rise by 15%, with tender prices expected to increase by 19%.
- A contraction in construction demand is forecast for 2024, with a 5.5% decrease in overall output.
- Growth is predicted to resume in 2025, driven by government housing initiatives and infrastructure projects.
- Labour shortages and geopolitical instabilities are potential risks to cost and project viability.
The BCIS has released its latest forecast, predicting notable trends in the construction industry over the next five years. This forecast anticipates that building costs will rise by 15%, while tender prices are expected to climb by 19%. These projections reflect ongoing changes in the industry landscape, as articulated by BCIS’s chief economist, David Crosthwaite.
In 2024, the construction sector is expected to face a 5.5% decline in overall output compared to 2023, due mainly to reduced activity in the housing, private commercial, and industrial sectors. This decline is compounded by elevated borrowing costs, which continue to deter investment, particularly within the private sector. Mr Crosthwaite noted that new orders are being stifled by a stagnant economy.
Despite the current downturn, growth is anticipated to rebound in 2025, with an expected 20% increase in new work output by the second quarter of 2029. This resurgence is supported by cross-sector wage growth, though it is somewhat less pronounced in the construction sector. Political developments, including upcoming elections and the associated spending plans, will also play a critical role in shaping sector recovery.
Tender prices, as indicated by the BCIS All-in Tender Price Index, saw an annual growth of 2.3% in the second quarter of 2024. Contractors remain cautious and selective about their project bids, with annual growth in tender prices predicted to continue falling but expected to outpace cost growth by the following year.
The labour market remains a critical factor, with labour costs driving input cost increases. The BCIS Labour Cost Index is set to rise by 17% between the second quarters of 2024 and 2029. Meanwhile, the Materials Cost Index has experienced a negative growth trend for two consecutive quarters, with a further 1% drop anticipated for the second quarter of 2024. However, an overall 14% increase is projected over the next five years due to potential disruptions in key trade routes and ongoing conflicts in the Middle East and Ukraine.
Mr Crosthwaite emphasized the possibility of rising labour costs due to skills shortages, which continue to pose a challenge to the construction industry’s recovery and viability. The workforce capacity stands at 90% of pre-pandemic levels, highlighting persistent concerns about meeting skill requirements. Similarly, material costs face upward pressure from geopolitical tensions affecting trade routes.
The BCIS forecast underscores the multifaceted challenges and potential recovery prospects facing the construction industry.
