Inflation eases back as some some sectors slow down

North

Residential

The market is very buoyant, especially apartments and high rise dwellings. Contractors cannot cope with the amount of work and are turning work away. Approximately 12% inflation in the last 12 months (typical build cost of £88 has now jumped to £100/ft2) – afforded by the increases in selling prices (typically jump from £205 to £230/ft2). Despite this boom several contractors have informally said they have lost money on individual schemes and are subsequently pulling out of the market.

Industrial and commercial

The only factor affecting tender prices in the last 18 months has been the price of steel. There has been an increase in tenders of circa 5% in last 12 months. Market remains competitive.

Education and health

Growth in each of these sectors is anticipated by several major contractors and each sector has been specifically targeted as a consequence.

Overhead and profits

Overheads and profit percentages were typically 12.5-15% 12 months ago however they are now typically 710%. Current tenders can be as tight as below 5%.

Materials

Steel and rebar has seen a significant rise in cost and there are difficulties in obtaining large quantities.

Labour/sub-contractors

Over the past year in particular several contractors have reported difficulties in obtaining quotations for masonry, brickwork, blockwork and plastering trades. Tenders obtained for these trades show increases above the norm/RPI, reflecting the effects of the amount of work and shortage of tradesmen.

Various sub-contractors and medium size contractors suggest a continuing decline in general basic skills and in particular with bricklayers, joiners, plasterers, plumbers and leadworkers.

South west

There is a current slow down in the housing sector due to interest rates remaining static. This has resulted in reduced confidence in the market generally and a slow down in the commercial sectors, including retail.

The public sector, particularly education and health, remains buoyant.

Materials

Increases in fuel priceshave pushed up the cost of raw materials, but availability has not been such a problem.

London & south east

The market remains strong and is currently fairly stable and this continues to increase both tender price and building cost inflation above the underlying inflation rate.

Contractors are very selective over which schemes they tender for both in terms of sector and clients, and more attention is being paid to tender list preparation.

Many major commercial developments which have been in the ‘pipeline’ are coming to fruition. This will impact on the labour market, which is already under-resourced, with skills shortages in some trades.

Market ‘hot spots’

The market is awaiting the Government’s paper on energy consumption in buildings and the effects this may have on renewable energy. The ‘City’ market is likely to increase in 2007 as the it gets ready for the next expected cyclical upturn.

Scotland

Indications are that inflation is reasonably stable throughout Scotland running between 3.5–4.5 %. Last year’s inflation was considerably higher (running between 6.5–8%), but this appears to have stabilised now.

This was very noticeable in the north east area of Scotland (Tayside in particular) with a shortage of work resulting in inflation of 7% in 9 months on one particular project. Due to a recent increase in workload, this has now eased off.

The construction market is very buoyant at the moment with the result that contractors can “pick and choose” to a certain degree. However, the retail sector is slowing slightly and the private housing market is also slowing due to house prices steadying, which has resulted in the buy/let market slowing further.

Materials

Steel prices appear to have been very reactive but are now levelling out.

There are no apparent delays in obtaining or delivery materials.

Labour/sub-contractors

Labour rates are increasing due to increased workload exerting pressure on limited resources. Work is picking up and this has resulted in a lack of skilled labour as demand has outstripped supply.

Market ‘hot spots’

The Public sector market is certainly keeping things busy with PFI works etc. Private commercial work in offices and entertainment/leisure sectors continues to rise.

North east

The North East market remains buoyant generally in 2005 but not as heated as in 2004 with inflation then around the 8 – 10% mark, mainly due to the volume of work available and compounded by significant

(but now slowing) rises in steel prices. Not only steel but other metal products have also seen significant increases, but the signs are that these are also slowing.

Tender price inflation appears to have peaked and it is anticipated that over the next year (2Q 05 to 2Q 06)

the level will reduce to around 4.5 - 5% and then further reduce in 2007 to around 4–4.5%; both still well ahead of the general rate of inflation. Commercial developments continue to attract interest and the housing for sale (private) market remains buoyant although the signs are it is now slowing.

Materials

There does not seem to be a shortage of materials generally. There is a significant (but now slowing) rise in steel prices. Steel products are still expensive but dropping. Lead in times for steel is still long at 12–14 weeks. Other non-steel metal products have also seen significant increases, but the signs are that these are also slowing. Materials prices are set to rise by about 0.5% per month (6% per annum).

Labour/sub-contractors

There are shortages in the skilled trades (especially bricklayers and joiners) and this has resulted in contractors changing to alternative methods of construction, with extensive use of timber framed houses to satisfy housing construction demands.

This year, labour prices are set to rise by just under 10% under national labour agreements and with a shortage of skilled workers and with work availability at their current levels, most of the price rises will likely be passed on to clients.

South Tyneside and Sunderland are set to follow behind Newcastle Building Schools for the Future initiatives, which could unleash up to £400m construction value on an already stretched workforce.

Midlands

The market is considered to be slowing down as evidenced by the number of enquiries to contractors over the last couple of months or so. Sectors par-ticularly affected seem to be of the ‘industrial shed’ type project which have all but dried up.

Difficult inner city refurbishment projects are proving very tricky to tender – lack of interest and increased premiums to these are expected – too much easier work elsewhere.

Suspicion on some £10 – 15m recently tendered projects that cover prices (overly high) may have been submitted in some instances rather than disappoint by dropping out after tenderer selection.

Materials

Steel – price has levelled out but suppliers are still using threat of a future increase. Steelwork quotes difficult to firm up as sub-contractors have got used to quoting on a ‘fluctuating’ basis and are reluctant to be committed to firm costs. Concrete planks are also proving difficult to source/costs increasing.

Labour/sub-contractors

Brickwork continues to be difficult to source. Alternative methods of construction are therefore increasingly being looked at, for example Metsec (a prefabricated building technique). Brickwork on some local large projects recently completed entirely by Eastern Europeans. Joinery becoming difficult – generally considered to be due to an ageing workforce and lack of training. Quality craftsman hard to come by.