Tender prices set to increase by 8.5%, study says
Turner & Townsend’s UK Market Intelligence Report has grim news for the future of the property industry as the global professional services company urges developers to secure a resilient supply chain.
The company predicts that tender prices will rise by 8.5% for the property industry this year and 6% when it comes to infrastructure projects.
Turner & Townsend cites the war in Ukraine and subsequent economic fallout, fuel price increases and supply chain interruptions as causes for the inflation. Brexit and the pandemic also contributed.
Currently, the market is grappling with the inflation of energy costs, which is leading to rising prices in construction materials and site operating costs. Turner & Townsend notes that monthly indices for crude oil, diesel and premium unleaded fuel increased 99.4%, 33.8% and 30.5% respectively in March. Alternative oil markets have helped ease the prices back down, but Turner & Townsend predicts the market will continue to be volatile and unpredictable.
An increase in energy costs means prices for bricks, ceramics, cement, plastics and steel – all of which require lots of energy to produce – are likely to soar.
UK steel buyers are now pivoting away from Ukraine and Russia for their goods, heading over to Japan and China instead. This means an increase in prices and lead-in times and could lead to an increase in costs as well.
- Read more: Industry battles to weather materials storm
The numbers are scary, but Turner & Townsend’s North West lead David Williams urges people not to panic.
“Now is the time for calm, clear and programmatic thinking – focusing on setting up projects for success with full recognition of challenging cost pressures and a plan to manage them that starts with getting the basics right,” Williams said.
“Contract scrutiny needs to be front and centre,” he continued. “Businesses in the North West must avoid panicked procurement in the hope of locking-in pricing, instead taking time to eliminate ambiguity that can be a bigger risk than inflation itself.”
The key is to pick a team of contracting partners that is resilient.
“Clients should map out the supply chain and identify weak links, then work to eliminate risk and where necessary share the burden of disruption,” Williams said.
“Those that successfully diversify their supply chains and build strong relationships with trusted suppliers will maximise resilience and benefit most long-term.”
It is not all bad news, with Turner & Townsend predicting that tender price inflation will go back down to 4% by 2023 in the real estate sector. The company also stated in its report: “Prices may peak over the next three months and then see some partial unwinding as the year progresses and markets begin to stabilise.”