‘No significant upturn’ for construction until mid-2025, new study reveals

Construction tender price inflation is set to grow from 2026 amid capacity issues caused by two-stage procurement and delays due to the Building Safety Act, a new study says.

The summer survey from Arcadis predicted that inflation on residential and commercial construction projects will reach 5-6 per cent from 2026 to 2028.

This is higher than the 4 per cent Arcadis foresaw in its previous spring report.

“Challenging market conditions will prevail throughout 2024, with no significant upturn in work on site before mid-2025,” the consultancy stated.

It added that resource constraints and delayed procurements were “reshaping the supply chain”.

It said the tighter capacity was due to stalled two-stage procurements “which diminish market competitiveness and hamper the pursuit of new opportunities”.

The number of contractors available to bid is being restricted by their pre-contract commitments to stalled projects, the report added.

Arcadis market intelligence lead Ian Goodridge said: “Capacity issues caused by projects let on a two-stage basis create a ‘holding pattern’ where contractors are committed to resourcing uncertain projects.

“This situation leads to a paradox of falling workload and contractors claiming they are too busy, as the new work pipeline remains empty.

“Clients need to engage with potential bidders at an early project stage to avoid the risk of a short bid list.”

Arcadis added that delays affecting residential projects under the new building safety regime were likely to prolong difficult market conditions until next year.

Its data showed that 75 per cent of high-risk residential projects needing second-staircase redesigns were on hold due to the Building Safety Act gateway-two rules.

In addition, “sluggish progress in commercial and public sector schemes” were likely to extend difficult market conditions until mid-2025, Arcadis said.

Noting the ongoing general election campaign, the report added that the construction sector was awaiting a clear sense of direction from the next government on growth initiatives and investment priorities.

“Political parties promise change during election campaigns, but there are few signs of improvement for the construction supply chain,” said Simon Rawlinson, head of strategic research and insight at Arcadis.

The latest analysis reflects recent data from the Construction Products Association, which expects output in the construction sector to fall by 2.2 per cent this year.

In addition, the most recent figures from the Office for National Statistics revealed that construction output fell in March for the second consecutive month.

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