Davis Langdon's latest forecasts for tender prices make for interesting reading. They are anticipating a fall in tender prices during 2009, 2010 and even in the first quarter of 2011. By 2010 Q1, tender prices are expected to be between 6% and 9% lower than a year earlier and by 2011 Q1, tender prices are expected to be 3% and 5% lower than a year earlier.

Grim reading indeed.

However, the evidence appears to be on their side.

Construction output, for 2008 Q4, fell by 7.3% compared to a year earlier, the sharpest rate since 1980 and new orders fell at its sharpest rate since 1983. Provisional 2009 Q1 figures highlight an 8.6% fall compared to a year earlier illustrating a worsening of the situation. The Construction Products Association forecasts that output in 2009 will fall 12.1%, the sharpest rate since records began (1955) with a further fall of 3.4% in 2010.

With falls in demand of this of this magnitude, falls in tender prices anticipated by DL are understandable, especially given that there is little on the cost side applying upward pressure on prices. Labour costs are not rising significantly as there is no difficulty in recruiting on site trades. Product prices illustrate a mixed picture. Although steel prices have fallen sharply due to a collapse in its two main markets of automotives and construction, many products have managed to avoid sharp falls in prices, especially those that are imported, mainly due to the depreciation of sterling raising their price in pounds.

Even still, this isn't enough to push tender prices up in a demand-determined market and I wouldn't bet against the type of falls that DL are anticipating.

Davis Langdon prices indices, 2002-2011

Noble Francis, economics director at the Construction Products Association