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There are now signs in the construction market that the pressure to reduce margins and cut costs is being reduced and prices are set to rise over the next two years or so. As everyone in this industry knows, the economic recovery is most prevalent in the London market and this has now started to push out to other regions through the UK.
The summer has seen a sustainable recovery in construction sector activity. Output at the begining of the year had been in decline, however confidence has gradually strengthened as the year has gone on. House buildingactivity boosted by the governments intervention to increase mortgage lending and overseas inward investment, is at the head of the recovery and improved prospects for the UK economy provide the stability that developers require prior to making critical investment decisions.
The outlook is for the forthcoming months is both strengthening and reassuring.
The signs for tendering activity have recovered too; contractors being more selective in the type of work they tender for, single stage tendering being given a wider berth with bulders taking less risk in their tendering activities.
The greatest risk to the recovery is the predicted lack of supply of labour in importenat niche markets as momentum in the construction industry starts to take off. It is worth mentioning at this stage that growth in material prices is predicted to remain stable, mainly due to the leveling off of Chinese demand globally, enabling market makers to predict material costs with more a higher level of accuracy.
As economic conditions improve and demand strengthens it is predicted that tender costs will rise.
What does this mean?
The national picture tells us that tender prices are forecasted to have declined by 1% by the 4th quarter of of 2013. Further to this they are predicted to rise by 1.25% in 201, following this we can predict a further growth of 2% for the following year.
When reviewing the London region we can expect to see this replicate the trend with predicted rises between 3.5 amd 4.5% in the next 12 months.
The ‘Office for National Statistics’ (ONS) show that a trend is developing with year on year growth in each of the last three months. Simply put this is driven by new housing which showed annual growth of 14.7% over the same period. The figures for new orders showed huge improvement in Q2 with a staggering 19.8% rise on Q1 and a 32.8% increase on the same period last year, with housing leading the markets with the biggest volume of orders for 5 years.