The Building Cost Information Service (BCIS) forecasts a notable increase in construction costs and tender prices over the next five years.
- Building costs are set to rise by 15%, with tender prices expected to surge by 20%.
- Civil engineering will follow suit with costs rising by 15% and tender prices by 23%.
- Infrastructure output is predicted to initially decline before recovering significantly.
- A slowdown in materials cost inflation is anticipated, yet substantial growth is still expected.
The BCIS has projected that over the next five years, building costs will experience an increment of 15%. Despite rising costs, tender prices are anticipated to surge by an even greater 20% over the same period. This trend highlights the increasing expense burden that clients will likely face when securing construction projects.
In parallel, the civil engineering sector is also expected to witness similar cost dynamics, with construction costs set to increase by 15% and tender prices by 23%. This demonstrates a broader industry trend where tender prices outpace raw cost growth, reflecting a competitive and risk-averse market environment.
New work infrastructure outputs are expected to initially decline by 3% in 2024. However, a rebound is projected from 2025 onwards, with an eventual growth of 19% driven by robust activity in the electricity sub-sector. This indicates a positive long-term outlook for infrastructure investments despite short-term contractions.
The BCIS All-in Tender Price Index, which tracks contractors’ pricing levels, reported a growth of 2.1% annually in the third quarter of 2024. According to BCIS chief economist David Crosthwaite, contractors remain cautious about project selection, although a slight improvement in the project pipeline has been observed, with 69% of panellists expecting a greater number of tenders in the coming year.
Material costs, which peaked in 2022, have shown signs of moderation with recent quarterly growth turning negative. Despite this, the BCIS forecasts a 15% increase in the materials cost index over the forecast period. This suggests that while immediate pressures may ease, long-term inflationary pressures will still impact the cost structure in construction.
Overall, the construction industry is heading towards a future of rising costs and selective project tendering amidst moderated inflationary pressures.
