tpf rider levett bucknall tender price forecast uk · 2019. 11. 25. · jo reynolds managing...

RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UKQ4 2019

TPF

Q4

CONTENTS

Economic Overview 1

London 4

Birmingham 6

Bristol 8

Manchester & Liverpool 10

Yorkshire & Humber 12

Thames Valley 14

About Rider Levett Bucknall 16

The essential forecast for Tender Price Inflation, RLB UK’s quarterly Tender Price Forecast provides regional tender price breakdowns and commentary from our cost management experts.

Rider Levett Bucknall | TPF Q4 2019

1Rider Levett Bucknall | TPF Q4 2019

ECONOMIC OVERVIEW

As the wider political machinations of Brexit roll on up to

and beyond the General Election, the construction industry

continues to mirror the broader economic situation. The 31

October exit deadline has passed-by, to be replaced by a date

of 31 January at the latest, and subject to the Withdrawal

Agreement Bill passing into UK law. However, all is contingent

on Parliament passing the Bill, after the General Election.

Given the possibilities regarding the balance of parties and

policies after the election, the outcome could still be any one

of many, including of course, further extension of the deadline.

If the new UK Government were to be placed in a position in

which amendments were added to the current negotiated

agreement, this would constitute a counter-offer to the EU,

and be accepted or rejected as such. That could lead to the

end-date arriving with no agreement having been reached,

which would in turn raise the possibility of either a no-deal exit

or the need for further extension.

The one thing that is in no doubt is that there is no easy

answer, and certainly not one which satisfies everyone

Meanwhile, the current situation in construction reflects the

hesitancy and uncertainty of national politics.

KEY ISSUES:

Labour availability concerns

Project deferrals

Continued uncertainty

Project cost increases

Government spending

commitments

2 Rider Levett Bucknall | TPF Q4 2019

Across the regions covered by our forecast, there is a

continuing theme of uncertainty in the marketplace and

hesitancy on the part of developers and major investors.

Pre-election promises, from all political shades, of boosted

infrastructure, health and education spending are of course

welcome, but involve commitment and then implementation

before coming to fruition, in whatever shape.

On the ground, the need for replacement workload is

becoming clearer and more urgent as time moves on without

political resolution.

In some locations, as existing projects roll on to completion,

the pipeline of prospective new work has been subjected to

deferrals on taking projects to tender. That hiatus has certainly

created a backlog that will eventually come to market in some

form. However, for now, it is creating an undersupply of work

to a marketplace that is increasingly under pressure of rising

input costs set against compressed margins and declining

tendering opportunities.

In other locations, where markets are reasonably buoyant

and workload remains strong, the medium to long-term focus

on the outturn trading relationship with the rest of Europe

remains a concern. Looking forward, the whole industry has

to deal with labour costs and availability effects, alongside

materials import and export cost considerations.

ROGER HOGGResearch & Development Manager

e. [email protected] m. +44 (0)7786 078520

Get in touch:

Contractors and sub-contractors, together with their supply

chains, are as yet still exposed to unknowns within which

they have to price new workload. This adds yet another layer

of practical uncertainty to the political uncertainty still to be

resolved.


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Department RedevelopmentPORTSMOUTH, UK

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LONDON

GET IN TOUCH:

Nick EliotManaging Partner - London


Rider Levett Bucknall60 New Broad Street

LondonEC2M 1JJ

TENDER PRICE FORECAST UPLIFT PERCENTAGES

SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (London) Q4 2019 1.00 2.00 2.50 3.25 NP

Others - Upper range (London) Q4 2019 2.90 3.00 5.00 5.00 4.30

Others - Lower range (London) Q4 2019 1.00 1.00 1.50 1.50 3.00

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50

%

NP: Not Published


Although many of the national trends we are seeing across the

built environment are reflected in the London market, the city

has its own micro issues including the slump in the high-end

residential market, with a 20% drop in sales prices in affluent

areas driven by the lack of foreign investment.

Sectors London’s activity across different sectors of the construction

industry is mixed. The commercial sector continues to be in

a holding position with feasibility studies and concepts being

progressed, but with start dates for build on hold until the

political situation stabilises.

This political and resulting economic stalemate, combined with

the government’s push towards organisations reducing their

carbon footprint, has reactivated the refurbishment market,

which feels fairly buoyant.

The industrial & logistics sector remains relatively strong, as it

is nationally. Funds are still actively looking to invest and the

continued increase in online retail looks likely to protect the

sector for a while.

Although demand at the top end of the housing market is in

rapid decline, the lower end remains active, being propped up

by the government’s Right to Buy initiative. The build to rent

market also continues to be busy but this remains a smaller

proportion of the market.

Developers continue to struggle to find land at the right price

and affordable housing remains stagnant.

Supply ChainThere is an underlying optimism that once the political

situation stabilises there will be a green light on many of the

projects currently in progress, with those in the supply chain,

especially specialist contractors, believing that there will be an

uplift come January/February 2020.

With the sales pipeline slowing and contractors feeling the need

to cut prices and margins to retain workflow and revenue, there

is a need to focus on procuring smartly and ensuring that the

foundations of the supply chain, especially in respect of the

smaller, more specialist contractors, remain strong.

Conclusion London continues to be a city of interest, with activity in

certain sectors still buoyant, even if more caution is being

observed and pace has slowed. There is also an optimism

that this parallel relationship of construction to politics could

generate a positive result with an interim uplift come Q1 2020.

However, as we have recognised from previous quarters in

2019, politics can often have unexpected and unprecedented

outcomes and we believe that the caution seen at the end of

2019 will continue into the first quarter of the new year and

beyond.

LONDON OVERVIEW


BIRMINGHAM

Rider Levett BucknallFifteen Colmore Row

BirminghamB3 2BH

SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (Birmingham) Q4 2019 2.25 3.25 4.00 4.00 3.00

Others - Upper range (Birmingham) Q4 2019 3.50 4.00 5.00 5.00 4.00

Others - Lower range (Birmingham) Q4 2019 2.00 2.00 1.50 1.50 3.00

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50


%

GET IN TOUCH:

Jo ReynoldsManaging Partner - Birmingham



Despite a backdrop of uncertainty and underlying

nervousness, activity in the last quarter has remained

reasonably buoyant. Strangely, pent-up demand may have

eased somewhat, due to either the hope of a deal or the

reality of being unable to wait any longer. The advent of the

General Election, however, has prolonged the uncertainty

and the election result may dictate whether there is a post-

Christmas bounce and consequent release of further projects.

Sectors Residential projects are continuing apace across most sub-

sectors. The trend for taller residential buildings is continuing,

with an increasing number of planning applications, but fewer

translating to project starts.

City and town centre retail is generally entirely paused, with

the challenges of the wider sector bearing on investment –

even in relation to refurbishment projects designed to increase

footfall. Re-purposing and alternative-use schemes are being

considered, but not many are coming forward to construction.

The industrial sector continues to focus on the ‘mega shed’,

with a number of significant deals announced and moving

forward to the build-phase. The shift in focus toward mid and

smaller-scale requirements is expected to continue.

The public sector is now largely paused, waiting to see where

a new Government’s spending plans may lie. With both main

parties promising increased public spending, it is likely that

Cabinet focus will dictate the pace and timing – both key to

understanding the translation to tender price levels.

Supply Chain Labour availability is reasonable across most trades, but

with some pressures, particularly on finishing-related trades.

Materials cost increases continue to have a significant bearing

on tender price movements, while challenges in availability

of some materials, such as plasterboard, are leading to some

sites stockpiling. Brexit planning has been stop-start and as a

result has lost some impetus, but is likely to have developed a

focus on a perceived more resilient UK-sourced supply chain.

With pipeline-lag felt down the supply chain, sub-contractor

pricing and availability is a concern, giving main contractors

the challenge of resilience in sub-contractor pricing levels, set

against hardened competition in the main contractor market.

Conclusion Main contractor tender price inflation is muted, affected

on the one hand by rising input costs and on the other by

ongoing pipeline concerns. A Q1 2020 “bounce” could follow

the release of pent-up projects in the event of a decisive

parliamentary majority and consequent clearing of the Brexit

fog. However, this could be against the backdrop of wider

global nervousness, the need for new trade deals and the

resolution of our European relationship. Revisions to Tender

Price Forecasts are to be expected throughout 2020.

BIRMINGHAM OVERVIEW


BRISTOL

GET IN TOUCH:

Jackie PinderManaging Partner – Bristol


Rider Levett BucknallEmbassy House86 Queen’s Ave

BristolBS8 1SB


SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (Bristol) Q4 2019 2.40 2.60 3.20 3.80 NP

Others - Upper range (Bristol) Q4 2019 4.00 4.50 5.00 5.00 4.00

Others - Lower range (Bristol) Q4 2019 1.00 1.50 1.50 1.50 3.40

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50

%

NP: Not Published


The South West, and Bristol in particular, is benefitting from

the continuing trend for individuals and businesses to relocate

outside of London and the region still seems to be earmarked

for potential investment.

Public sector work remains strong, with affordable and social

housing projects continuing following the Mayor of Bristol’s

pledge to address the housing challenge. However, there has

been push back on the private residential side, with schemes

being put on hold or delayed while financers hesitate in

relation to funding for some projects.

SectorsIn addition to the strong commercial, social and affordable

housing markets, and given the continued high demand

from local and foreign students, the University of Bristol

continues to invest in new facilities whilst refurbishing its

existing property portfolio in the Clifton area. The University

of the West of England also remains committed to developing

its campus away from the city centre. The ongoing work at

Hinckley Point continues to bring investment benefit to the

region, but also continues to have an influence on labour

availability and wage demands across all disciplines and levels.

Supply ChainPressures on resources remain high, and the region is starting

to feel the impact of a lack of supply. However, while sub-

contractors are passing rising costs on to main contractors,

in order to remain competitive, the main contractors are

absorbing them. Margins are being compressed through

ongoing competitive pricing and we are continuing to see

main contractors discounting to potentially unsustainable

levels in order to secure turnover. Brexit is affecting the market

by promoting moves toward UK-only materials supplies,

favouring security of delivery over prospective cost increases.

With regard to procurement pathways, many clients are still

preferring to opt for a single-stage competitive tender process

rather than a two-stage process, in order to take advantage of

the competitive market

ConclusionOverall, construction activity remains fairly buoyant in the

region, with pockets of very strong growth, particularly in

Bristol. The city remains sought after for its development

potential, which in turn is still attracting main contractors to

the wider city from across the South West and Wales.

As with other areas, there are concerns around the uncertainty

of the economic outlook, combined with pressure on costs

and the skills shortage affecting sentiment and resulting in

some regional contractor insolvencies.

BRISTOL OVERVIEW


MANCHESTER & LIVERPOOL

GET IN TOUCH:

Russell BoltonManaging Partner – Manchester & Liverpool


Rider Levett Bucknall8 Princes Parade

Liverpool L3 1DL

Rider Levett Bucknall1 King St

ManchesterM2 6AW

SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (Manchester) Q4 2019 2.00 2.50 3.50 3.50 3.50

RLB (Liverpool) Q4 2019 1.00 2.50 3.50 NP NP

Others - Upper range (North West) Q4 2019 4.50 4.50 4.50 4.50 3.50

Others - Lower range (North West) Q4 2019 1.50 1.50 1.50 1.50 3.00

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50


NP: Not Published

%


The pace of development across the region remains good

despite the potential for a slow down with the double impact

of Brexit and the forthcoming General Election delaying some

decisions. This has been felt particularly in public authority

spending, and through a general mood of waiting to see what

the next quarter will bring. Contractor and suppliers’ resources

are tight, with skilled labour remaining in high demand and

some contractors turning down tendering opportunities,

where they have a strong order book. Some contractors,

however, are forseeing a gap in the pipeline and this is keeping

any upturn in pricing in check.

SectorsHealth and education schemes are fairly active with work

ongoing across the region such as Royal Liverpool University

Trust, Salford Royal NHS Trusts and the University of

Manchester. Residential schemes, particularly in Manchester

where it remains the key driving force in the city, are also

continuing although there is some caution around future

investment. Similarly, civil infrastructure projects are also

ongoing. Retail and leisure remains challenging and the

commercial office sector is focused on client-led schemes

rather than speculative development, with a certain amount

of old stock yet to be filled. Catalyst projects, such as the

development of the cruise liner terminal, the regeneration

programmes around Everton stadium and further

development of Mayfield, are still waiting to get the go ahead.

Supply ChainThe availability of skilled labour remains problematic. We are

seeing commercial inducements from contractors to secure

certain resources, including shortening of payment terms, in

some instances to 14 days. Pricing remains keen and some

contractors with full order books are choosing not to go into

tenders, but this remains in check.

With the possibility of some major projects being unlocked,

depending on the election results, resources could come under

even more pressure, which will no doubt influence pricing.

Pricing for materials is under constant review, with contractors

securing early orders to limit expenditure. We have seen some

examples of stockpiling of key materials due to uncertainty

around Brexit and materials being sourced well ahead in order

to be prepared.

ConclusionWhilst the region remains in a holding pattern for the quarter,

waiting on the results of the general election and further news

on Brexit, there is still a fair amount of activity. Combined

with a number of key major programmes on the radar, which

if unlocked could create a significant amount of activity

across sectors, there is the anticipation of further potential

growth. However, contractors and the supply chain are already

constrained and an increase in activity would no doubt

increase price levels.

MANCHESTER & LIVERPOOL OVERVIEW


YORKSHIRE & HUMBER

GET IN TOUCH:

Matt SummerhillManaging Partner - Yorkshire & Humber


Rider Levett Bucknall6th Floor Orchard Lane Wing

Fountain PrecinctBalm Green

SheffieldS1 2JA

Rider Levett Bucknall4D

PlatformNew Station St

Leeds LS1 4JB

SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (Sheffield) Q4 2019 2.00 2.60 3.00 3.60 3.60

RLB (Leeds) Q4 2019 2.20 2.80 3.20 3.80 3.80

Others - Upper range (Sheffield and Leeds) Q4 2019 4.00 4.00 5.00 5.00 3.80

Others - Lower range (Sheffield and Leeds) Q4 2019 1.00 1.00 1.50 2.00 2.50

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50

%


%


The construction industry in Yorkshire and Humberside

appears to be somewhat less impacted than are other regions

by the ongoing national political and economic uncertainty.

SectorsYorkshire and Humber is still seeing many sectors remain

active, including infrastructure, with ongoing work improving

transportation links. The region is also benefitting from the

increased demand for more warehouse space, with the

logistics sector continuing to grow as major online retailers

demand warehousing and fulfilment space.

It is in the residential and education sectors, however, where

we are seeing the most growth. An ageing population has

resulted in increased demand for the building of care homes

and supported living facilities across the region. We are also

seeing an ongoing demand for student accommodation,

especially in cities such as Leeds and Sheffield.

Supply ChainReflecting events nationally, contractors’ input costs in the

region continue to rise. This is an unsurprising consequence

of labour and skills shortages, as many skilled tradesmen

and labourers return to the EU in anticipation of the Brexit

outcome. Looking beyond the eventual Brexit date, costs of

materials also look likely to continue their increase, due in

part to normal increases in manufacturing costs and also to

possible addition of import-duties from the EU to the UK.

The speculation about events surrounding and beyond

the General Election continues to play its role in investors’

confidence levels, with many contractors also facing cost

and resource challenges, and less on the order books. In

their bidding, contractors are being forced farther into the

shallowing pool of new work available, while at the same time

minimising costs and squeezing margins.

Conclusion Despite its current relative strength, the Yorkshire and

Humber region is quite indicative of the national picture of

the construction industry, with the economic and political

uncertainty leading to fewer tender opportunities, lack of

investor confidence and many clients of the industry pausing

their activities subject to the outcomes of the General Election

and Brexit. However, while the general Brexit uncertainty

continues, the perception of the chance of a chaotic ‘no deal’

exit seems to have receded somewhat, giving rise to some

hope of the uncertainty reaching its conclusion soon.

YORKSHIRE & HUMBER OVERVIEW


THAMES VALLEY

GET IN TOUCH:

Michael RightonManaging Partner – Thames Valley


Rider Levett Bucknall1000 Eskdale RoadWinnersh Triangle

WokinghamBerkshireRG41 5TS


SOURCE REPORTED 2019 2020 2021 2022 2023

RLB (Thames Valley) Q4 2019 1.50 2.50 2.50 3.00 3.00

Others - Upper range (Thames Valley) Q4 2019 2.90 3.00 5.00 5.00 3.50

Others - Lower range (Thames Valley) Q4 2019 1.00 1.00 1.50 1.50 3.00

BCIS (National) Q4 2019 -0.30 3.30 4.60 6.40 6.50

%%


By the nature of its proximity to London and Heathrow Airport,

the Thames Valley property and construction market is dynamic

and diverse, and a reasonable degree of positive sentiment

remains as of Q4 2019. However, the region is not unaffected by

the national political backdrop and uncertainty and a degree of

sensitivity is inevitable until such time as there is greater clarity

about the UK’s future relationship with the EU.

SectorsInfrastructure remains a key sector for the Thames Valley

region, with numerous strategic projects currently either in

construction or at planning stages. However, other sectors

remain resilient, with projects maintaining momentum. The

London effect continues to play its part in the residential

market, with the Thames Valley region benefitting from those

that wish to reside within a commutable distance from the

capital. Commercial space remains well occupied, with high

tenancy rates, although the national uncertainty in the market

and economy has in some instances led to hesitance in

speculative office builds and developments.

Thames Valley’s regional stronghold of Higher Education

establishments, educational projects and, particularly,

University campuses, continues to be redeveloped both to

update and enhance their estates as well as to continue to

attract and retain students.

Healthcare continues to be an area of national growth for RLB

and, given the parties’ spending pledges prior to the General

Election, we will continue to look at opportunities to support

NHS estates in its aftermath.

Supply ChainWith construction activity in the Thames Valley continuing to

prosper this fourth quarter of 2019, contractors are still being

selective of the types of project opportunities they pursue.

Contractors seem to be confident that the pipeline is robust

for now and we are not experiencing suppliers being priced

out of the market by those looking for cash flow rather than

long term commercial gain. Tender price movements are in

line with our forecasts. However, the political situation and the

uncertainty around what will happen between the UK and the

EU is of course having an impact, with associated increases in

cost of materials.

ConclusionAlthough nationally we seem to be at political stalemate, with

continued economic and commercial uncertainty, Thames

Valley continues to be resilient for the reasons outlined above.

We expect construction tender price inflation levels to remain

on a consistent upward trend in the short to medium term, to

reflect the general levels of construction activity in the region.

THAMES VALLEY OVERVIEW


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tpf rider levett bucknall tender price forecast uk · 2019. 11. 25. · jo reynolds managing...

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