Economic slump to keep tenders low

Construction tender prices are not expected to begin to rise until early next year in London and not until the end of 2013 across the UK, according to a new report.

The quarterly report by consultant EC Harris, which tracks tender prices in the UK property and infrastructure sectors, predicts that the continued uncertainty across Europe will continue to impact the UK economy and hurt the construction sector.

It found that across the UK tender prices are expected to fall by 2.5% in the year to the second quarter of 2013 before rising by 1.8%the following year.

UK tender prices are expected to increase to 3.5% in the year to the second quarter of 2015.

It said the difference in activity levels between London and the rest of the UK was expected to continue, with the potential workload in the commercial offices sector and a continued demand for high quality residential schemes meaning that the fall in tender prices in London was expected to turn around in the first quarter of 2013.

It said London tender prices would rise by 0.5% in the year to the second quarter and by 3.5% the following year. The report said a further 4.6% increase was expected in 2015.

However, the report said that while was a strong pipeline in London, with orders increasing by 8%, away from London the commercial office market was “stagnating with fewer potential projects”.

The report said infrastructure tender prices would rise by 1.7% by the second quarter of 2013 and continue to rise to 2.4% over the following year. It said infrastructure tender prices would rise by 3.4% in 2015 and by 4% over each of the following two years.

Paul Moore, EC Harris head of cost research, said: “With the UK economy back in recession and Eurozone recovery strategies still not boosting market confidence, the pressure on contractors can only increase.

“Although Sterling remains strong, this is unlikely to have a positive impact on market price until the Eurozone crisis is resolved. Clients therefore need to be cautious when relying on the current Euro exchange rates when making cost plans and ensure that they are protected against the potential insolvencies of their sub-contractors who may have overstretched whilst trying to take advantage of favorable rates.”

For a copy of the Summer 2012 Market View, please click here.