TPF RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UK · 2019. 11. 25. · Jo Reynolds Managing...
Transcript of TPF RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UK · 2019. 11. 25. · Jo Reynolds Managing...
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RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UKQ4 2019
TPF
Q4
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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
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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
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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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Queen Alexandra Emergency
Department RedevelopmentPORTSMOUTH, UK
AN INNOVATIVE NEW APPROACH TO PROVIDING
INTEGRATED UNSCHEDULED CARE
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4 Rider Levett Bucknall | TPF Q4 2019
LONDON
GET IN TOUCH:
Nick EliotManaging Partner - London
e. [email protected] m. +44 (0)7795 427997
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
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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
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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
TENDER PRICE FORECAST UPLIFT PERCENTAGES
%
GET IN TOUCH:
Jo ReynoldsManaging Partner - Birmingham
e. [email protected] m. +44 (0)7740 733187
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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
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BRISTOL
GET IN TOUCH:
Jackie PinderManaging Partner – Bristol
e. [email protected] m. +44 (0)7967 739595
Rider Levett BucknallEmbassy House86 Queen’s Ave
BristolBS8 1SB
TENDER PRICE FORECAST UPLIFT PERCENTAGES
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
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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
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MANCHESTER & LIVERPOOL
GET IN TOUCH:
Russell BoltonManaging Partner – Manchester & Liverpool
e. [email protected] m. +44 (0)7764 631607
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
TENDER PRICE FORECAST UPLIFT PERCENTAGES
NP: Not Published
%
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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
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YORKSHIRE & HUMBER
GET IN TOUCH:
Matt SummerhillManaging Partner - Yorkshire & Humber
e. [email protected] m. +44 (0)7920 292545
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
%
TENDER PRICE FORECAST UPLIFT PERCENTAGES
%
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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
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THAMES VALLEY
GET IN TOUCH:
Michael RightonManaging Partner – Thames Valley
e. [email protected] m. +44 (0)7920 570600
Rider Levett Bucknall1000 Eskdale RoadWinnersh Triangle
WokinghamBerkshireRG41 5TS
TENDER PRICE FORECAST UPLIFT PERCENTAGES
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
%%
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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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