Building magazine in August were unequivocal (sort of!):-
Market forecast: Consistently uncertain.
Construction data – both hard and soft – remains consistently inconsistent. Overall construction activity is slowing, but this doesn’t tell the full story
From the first quarter of 2016 to first quarter 2017, RICS’ Building Cost Information Service (BCIS) showed an increase in the All-In tender prices of 4.2%, their forecast for the same period 2017 to 2018 shows 0% growth with a marginal increase of 0.7% the following year. And then from the beginning of 2019, they forecast All-In tender prices to increase by approximately 5% year on year up to 2022. So, up?
It is a similar up and down story for construction sector output. This was estimated to have decreased by 1.3% in 2nd quarter 2017 compared with the previous quarter, following an increase of 1.1% between 4th quarter 2016 and 1st quarter 2017. (BCIS news article ‘The Economy – Gross Domestic Product’ 24/8/17). So, down?
‘Consistently inconsistent’ does seem to be an ‘accurate assessment’ of current market conditions. What is driving this uncertainty?
- Brexit, Hung Parliament and the economy? Brexit and then the hung parliament have left the economy, if not reeling, certainly a bit wobbly. Investors’ confidence is rattled, add the hurdle of poor exchange rates and it is no surprise that confidence is lacking.
- Skills shortage? The shortage of labour is causing local spikes in labour costs. Particularly noticeable in the key trades of bricklaying, carpentry and plastering, there are two obvious reasons for the shortage in skilled workers. The first, an ageing workforce, compounded by a lack of ‘new blood’ entering the construction industry despite the promotion of apprenticeships and the like. The second, a gap in the labour market caused by foreign skilled labour returning home to countries which are now, ironically, more economically stable.
- Supply and demand? The market recovery from the crash of 2008 resulted in an increased demand for key building products – bricks, insulation materials, windows. This pushed prices up. More recently the buoyant market and construction activity has had a significant effect on material prices.
Events such as the recent tragedy at Grenfell Tower also have an impact on material prices, in this case a sharp surge in demand for fire resistant cladding and insulation.
And it is not just prices of materials that are affected. Surges in demand can also impact lead-in times for critical items such as roof coverings, in turn resulting in extended construction times and increased preliminary site costs.
According to Building magazine, lead-in times for most packages for construction projects are ‘at the highest level since records began’, reporting that a metal panelised cladding system has a 50-week lead in period (Issue 29 Friday 21.07.17)
The perennial vicious circle – the market is uncertain, which unsettles developers, who in-turn become hesitant about starting projects, increasing the market uncertainty.
Or is, as some would argue, that the market is cyclical?
Either way, there are ways to mitigate the impact of uncertainty on your next construction project. We can help:
- Risk Management – With our wide ranging experience we are able to manage risk during a construction project by preparing and costing risk registers, agreeing suitable contingency allowances and transferring risk to the party most capable of managing the issue.
- Procurement Route – Choose the most appropriate one for your project. Depending on our clients’ requirements there are many alternative routes we can advise on, accommodating different priorities – cost, time, quality and risk among others.
- Cost Planning – We can provide early and accurate cost planning using up to the minute data to minimise the likelihood of any unpleasant financial shocks.
- Value Engineering – By careful selection of materials and rigorous value engineering – not necessarily spending less, but spending wisely – we can ensure you achieve best value for money and confidence in the product.
To see all the services we offer have a browse around our new website www.danielconnal.co.uk