TPF RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UK Q4 2019 Q4 CONTENTS
Economic Overview 1 The essential forecast for London 4 Tender Price Inflation, RLB UK’s quarterly Tender Price Forecast Birmingham 6 provides regional tender price Bristol 8 breakdowns and commentary from our cost management Manchester & Liverpool 10 experts. Yorkshire & Humber 12 Thames Valley 14 About Rider Levett Bucknall 16
Rider Levett Bucknall | TPF Q4 2019 ECONOMIC OVERVIEW
As the wider political machinations of Brexit roll on up to KEY ISSUES: 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 Project Agreement Bill passing into UK law. However, all is contingent on Parliament passing the Bill, after the General Election. deferrals
Given the possibilities regarding the balance of parties and policies after the election, the outcome could still be any one Project of many, including of course, further extension of the deadline. cost increases 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, Continued and be accepted or rejected as such. That could lead to the uncertainty 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. Government The one thing that is in no doubt is that there is no easy spending answer, and certainly not one which satisfies everyone commitments Meanwhile, the current situation in construction reflects the hesitancy and uncertainty of national politics. Labour availability concerns
Rider Levett Bucknall | TPF Q4 2019 1 Across the regions covered by our forecast, there is a Contractors and sub-contractors, together with their supply continuing theme of uncertainty in the marketplace and chains, are as yet still exposed to unknowns within which hesitancy on the part of developers and major investors. they have to price new workload. This adds yet another layer Pre-election promises, from all political shades, of boosted of practical uncertainty to the political uncertainty still to be infrastructure, health and education spending are of course resolved. 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 Get in touch: and workload remains strong, the medium to long-term focus on the outturn trading relationship with the rest of Europe ROGER HOGG remains a concern. Looking forward, the whole industry has Research & to deal with labour costs and availability effects, alongside Development Manager materials import and export cost considerations. e. [email protected] m. +44 (0)7786 078520
2 Rider Levett Bucknall | TPF Q4 2019 Queen Alexandra Emergency Department Redevelopment PORTSMOUTH, UK AN INNOVATIVE NEW APPROACH TO PROVIDING INTEGRATED UNSCHEDULED CARE
Rider Levett Bucknall | TPF Q4 2019 3 LONDON 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 GET IN TOUCH:
Nick Eliot Managing Partner - London Rider Levett Bucknall 60 New Broad Street e. [email protected] London m. +44 (0)7795 427997 EC2M 1JJ
4 Rider Levett Bucknall | TPF Q4 2019 LONDON OVERVIEW
Although many of the national trends we are seeing across the Developers continue to struggle to find land at the right price built environment are reflected in the London market, the city and affordable housing remains stagnant. has its own micro issues including the slump in the high-end residential market, with a 20% drop in sales prices in affluent Supply Chain areas driven by the lack of foreign investment. There is an underlying optimism that once the political situation stabilises there will be a green light on many of the Sectors projects currently in progress, with those in the supply chain, London’s activity across different sectors of the construction especially specialist contractors, believing that there will be an industry is mixed. The commercial sector continues to be in uplift come January/February 2020. a holding position with feasibility studies and concepts being With the sales pipeline slowing and contractors feeling the need progressed, but with start dates for build on hold until the to cut prices and margins to retain workflow and revenue, there political situation stabilises. is a need to focus on procuring smartly and ensuring that the This political and resulting economic stalemate, combined with foundations of the supply chain, especially in respect of the the government’s push towards organisations reducing their smaller, more specialist contractors, remain strong. carbon footprint, has reactivated the refurbishment market, which feels fairly buoyant. Conclusion London continues to be a city of interest, with activity in The industrial & logistics sector remains relatively strong, as it certain sectors still buoyant, even if more caution is being is nationally. Funds are still actively looking to invest and the observed and pace has slowed. There is also an optimism continued increase in online retail looks likely to protect the that this parallel relationship of construction to politics could sector for a while. generate a positive result with an interim uplift come Q1 2020.
Although demand at the top end of the housing market is in However, as we have recognised from previous quarters in rapid decline, the lower end remains active, being propped up 2019, politics can often have unexpected and unprecedented by the government’s Right to Buy initiative. The build to rent outcomes and we believe that the caution seen at the end of market also continues to be busy but this remains a smaller 2019 will continue into the first quarter of the new year and proportion of the market. beyond.
Rider Levett Bucknall | TPF Q4 2019 5 BIRMINGHAM TENDER PRICE FORECAST UPLIFT PERCENTAGES
%
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 Reynolds Managing Partner - Birmingham Rider Levett Bucknall Fifteen Colmore Row e. [email protected] Birmingham m. +44 (0)7740 733187 B3 2BH
6 Rider Levett Bucknall | TPF Q4 2019 BIRMINGHAM OVERVIEW
Despite a backdrop of uncertainty and underlying Cabinet focus will dictate the pace and timing – both key to nervousness, activity in the last quarter has remained understanding the translation to tender price levels. reasonably buoyant. Strangely, pent-up demand may have eased somewhat, due to either the hope of a deal or the Supply Chain reality of being unable to wait any longer. The advent of the Labour availability is reasonable across most trades, but General Election, however, has prolonged the uncertainty with some pressures, particularly on finishing-related trades. and the election result may dictate whether there is a post- Materials cost increases continue to have a significant bearing Christmas bounce and consequent release of further projects. on tender price movements, while challenges in availability of some materials, such as plasterboard, are leading to some Sectors sites stockpiling. Brexit planning has been stop-start and as a Residential projects are continuing apace across most sub- result has lost some impetus, but is likely to have developed a sectors. The trend for taller residential buildings is continuing, focus on a perceived more resilient UK-sourced supply chain. with an increasing number of planning applications, but fewer With pipeline-lag felt down the supply chain, sub-contractor translating to project starts. pricing and availability is a concern, giving main contractors City and town centre retail is generally entirely paused, with the challenge of resilience in sub-contractor pricing levels, set the challenges of the wider sector bearing on investment – against hardened competition in the main contractor market. even in relation to refurbishment projects designed to increase footfall. Re-purposing and alternative-use schemes are being Conclusion considered, but not many are coming forward to construction. Main contractor tender price inflation is muted, affected on the one hand by rising input costs and on the other by The industrial sector continues to focus on the ‘mega shed’, ongoing pipeline concerns. A Q1 2020 “bounce” could follow with a number of significant deals announced and moving the release of pent-up projects in the event of a decisive forward to the build-phase. The shift in focus toward mid and parliamentary majority and consequent clearing of the Brexit smaller-scale requirements is expected to continue. fog. However, this could be against the backdrop of wider global nervousness, the need for new trade deals and the The public sector is now largely paused, waiting to see where resolution of our European relationship. Revisions to Tender a new Government’s spending plans may lie. With both main Price Forecasts are to be expected throughout 2020. parties promising increased public spending, it is likely that
Rider Levett Bucknall | TPF Q4 2019 7 BRISTOL 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 GET IN TOUCH:
Jackie Pinder Rider Levett Bucknall Managing Partner – Bristol Embassy House 86 Queen’s Ave e. [email protected] Bristol m. +44 (0)7967 739595 BS8 1SB
8 Rider Levett Bucknall | TPF Q4 2019 BRISTOL OVERVIEW
The South West, and Bristol in particular, is benefitting from contractors are passing rising costs on to main contractors, the continuing trend for individuals and businesses to relocate in order to remain competitive, the main contractors are outside of London and the region still seems to be earmarked absorbing them. Margins are being compressed through for potential investment. ongoing competitive pricing and we are continuing to see main contractors discounting to potentially unsustainable Public sector work remains strong, with affordable and social levels in order to secure turnover. Brexit is affecting the market housing projects continuing following the Mayor of Bristol’s by promoting moves toward UK-only materials supplies, pledge to address the housing challenge. However, there has favouring security of delivery over prospective cost increases. been push back on the private residential side, with schemes being put on hold or delayed while financers hesitate in With regard to procurement pathways, many clients are still relation to funding for some projects. preferring to opt for a single-stage competitive tender process rather than a two-stage process, in order to take advantage of Sectors the competitive market In addition to the strong commercial, social and affordable housing markets, and given the continued high demand Conclusion from local and foreign students, the University of Bristol Overall, construction activity remains fairly buoyant in the continues to invest in new facilities whilst refurbishing its region, with pockets of very strong growth, particularly in existing property portfolio in the Clifton area. The University Bristol. The city remains sought after for its development of the West of England also remains committed to developing potential, which in turn is still attracting main contractors to its campus away from the city centre. The ongoing work at the wider city from across the South West and Wales. Hinckley Point continues to bring investment benefit to the As with other areas, there are concerns around the uncertainty region, but also continues to have an influence on labour of the economic outlook, combined with pressure on costs availability and wage demands across all disciplines and levels. and the skills shortage affecting sentiment and resulting in Supply Chain some regional contractor insolvencies. Pressures on resources remain high, and the region is starting to feel the impact of a lack of supply. However, while sub-
Rider Levett Bucknall | TPF Q4 2019 9 MANCHESTER & LIVERPOOL TENDER PRICE FORECAST UPLIFT PERCENTAGES
%
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
GET IN TOUCH: NP: Not Published
Russell Bolton Managing Partner – Manchester & Liverpool Rider Levett Bucknall Rider Levett Bucknall 1 King St 8 Princes Parade e. [email protected] Manchester Liverpool m. +44 (0)7764 631607 M2 6AW L3 1DL
10 Rider Levett Bucknall | TPF Q4 2019 MANCHESTER & LIVERPOOL OVERVIEW
The pace of development across the region remains good Supply Chain despite the potential for a slow down with the double impact The availability of skilled labour remains problematic. We are of Brexit and the forthcoming General Election delaying some seeing commercial inducements from contractors to secure decisions. This has been felt particularly in public authority certain resources, including shortening of payment terms, in spending, and through a general mood of waiting to see what some instances to 14 days. Pricing remains keen and some the next quarter will bring. Contractor and suppliers’ resources contractors with full order books are choosing not to go into are tight, with skilled labour remaining in high demand and tenders, but this remains in check. some contractors turning down tendering opportunities, With the possibility of some major projects being unlocked, where they have a strong order book. Some contractors, depending on the election results, resources could come under however, are forseeing a gap in the pipeline and this is keeping even more pressure, which will no doubt influence pricing. any upturn in pricing in check. Pricing for materials is under constant review, with contractors Sectors securing early orders to limit expenditure. We have seen some Health and education schemes are fairly active with work examples of stockpiling of key materials due to uncertainty ongoing across the region such as Royal Liverpool University around Brexit and materials being sourced well ahead in order Trust, Salford Royal NHS Trusts and the University of to be prepared. Manchester. Residential schemes, particularly in Manchester where it remains the key driving force in the city, are also Conclusion continuing although there is some caution around future Whilst the region remains in a holding pattern for the quarter, investment. Similarly, civil infrastructure projects are also waiting on the results of the general election and further news ongoing. Retail and leisure remains challenging and the on Brexit, there is still a fair amount of activity. Combined commercial office sector is focused on client-led schemes with a number of key major programmes on the radar, which rather than speculative development, with a certain amount if unlocked could create a significant amount of activity of old stock yet to be filled. Catalyst projects, such as the across sectors, there is the anticipation of further potential development of the cruise liner terminal, the regeneration growth. However, contractors and the supply chain are already programmes around Everton stadium and further constrained and an increase in activity would no doubt development of Mayfield, are still waiting to get the go ahead. increase price levels.
Rider Levett Bucknall | TPF Q4 2019 11 YORKSHIRE & HUMBER TENDER PRICE FORECAST UPLIFT PERCENTAGES
%%
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
GET IN TOUCH: Rider Levett Bucknall Rider Levett Bucknall Matt Summerhill 6th Floor Orchard Lane Wing 4D Managing Partner - Yorkshire & Humber Fountain Precinct Platform Balm Green New Station St e. [email protected] Sheffield Leeds m. +44 (0)7920 292545 S1 2JA LS1 4JB
12 Rider Levett Bucknall | TPF Q4 2019 YORKSHIRE & HUMBER OVERVIEW
The construction industry in Yorkshire and Humberside part to normal increases in manufacturing costs and also to appears to be somewhat less impacted than are other regions possible addition of import-duties from the EU to the UK. by the ongoing national political and economic uncertainty. The speculation about events surrounding and beyond Sectors the General Election continues to play its role in investors’ Yorkshire and Humber is still seeing many sectors remain confidence levels, with many contractors also facing cost active, including infrastructure, with ongoing work improving and resource challenges, and less on the order books. In transportation links. The region is also benefitting from the their bidding, contractors are being forced farther into the increased demand for more warehouse space, with the shallowing pool of new work available, while at the same time logistics sector continuing to grow as major online retailers minimising costs and squeezing margins. demand warehousing and fulfilment space. Conclusion It is in the residential and education sectors, however, where Despite its current relative strength, the Yorkshire and we are seeing the most growth. An ageing population has Humber region is quite indicative of the national picture of resulted in increased demand for the building of care homes the construction industry, with the economic and political and supported living facilities across the region. We are also uncertainty leading to fewer tender opportunities, lack of seeing an ongoing demand for student accommodation, investor confidence and many clients of the industry pausing especially in cities such as Leeds and Sheffield. their activities subject to the outcomes of the General Election and Brexit. However, while the general Brexit uncertainty Supply Chain continues, the perception of the chance of a chaotic ‘no deal’ Reflecting events nationally, contractors’ input costs in the exit seems to have receded somewhat, giving rise to some region continue to rise. This is an unsurprising consequence hope of the uncertainty reaching its conclusion soon. 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
Rider Levett Bucknall | TPF Q4 2019 13 THAMES VALLEY 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
GET IN TOUCH: Rider Levett Bucknall Michael Righton 1000 Eskdale Road Managing Partner – Thames Valley Winnersh Triangle Wokingham e. [email protected] Berkshire m. +44 (0)7920 570600 RG41 5TS
14 Rider Levett Bucknall | TPF Q4 2019 THAMES VALLEY OVERVIEW
By the nature of its proximity to London and Heathrow Airport, Healthcare continues to be an area of national growth for RLB the Thames Valley property and construction market is dynamic and, given the parties’ spending pledges prior to the General and diverse, and a reasonable degree of positive sentiment Election, we will continue to look at opportunities to support remains as of Q4 2019. However, the region is not unaffected by NHS estates in its aftermath. the national political backdrop and uncertainty and a degree of sensitivity is inevitable until such time as there is greater clarity Supply Chain about the UK’s future relationship with the EU. With construction activity in the Thames Valley continuing to prosper this fourth quarter of 2019, contractors are still being Sectors selective of the types of project opportunities they pursue. Infrastructure remains a key sector for the Thames Valley Contractors seem to be confident that the pipeline is robust region, with numerous strategic projects currently either in for now and we are not experiencing suppliers being priced construction or at planning stages. However, other sectors out of the market by those looking for cash flow rather than remain resilient, with projects maintaining momentum. The long term commercial gain. Tender price movements are in London effect continues to play its part in the residential line with our forecasts. However, the political situation and the market, with the Thames Valley region benefitting from those uncertainty around what will happen between the UK and the that wish to reside within a commutable distance from the EU is of course having an impact, with associated increases in capital. Commercial space remains well occupied, with high cost of materials. tenancy rates, although the national uncertainty in the market and economy has in some instances led to hesitance in Conclusion speculative office builds and developments. Although nationally we seem to be at political stalemate, with Thames Valley’s regional stronghold of Higher Education continued economic and commercial uncertainty, Thames establishments, educational projects and, particularly, Valley continues to be resilient for the reasons outlined above. University campuses, continues to be redeveloped both to We expect construction tender price inflation levels to remain update and enhance their estates as well as to continue to on a consistent upward trend in the short to medium term, to attract and retain students. reflect the general levels of construction activity in the region.
Rider Levett Bucknall | TPF Q4 2019 15 ABOUT RIDER LEVETT BUCKNALL
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