But London cost consultant says current ‘equilibrium on borrowed time’
The impact of price rises in material caused by higher energy prices is having a minimal impact on jobs – but only because demand isn’t there, London cost consultant Core Five has said.
Core Five’s research lead Jon Boys said: “An energy shock resulting in higher materials prices is being neutralised by lacklustre demand. Filling pipelines requires squeezing margins and finding creative solutions to do more with less.”
But he added this would only last for so long: “For now, these factors are balanced and [tender prices] remain unrevised. This equilibrium is on borrowed time and can only be sustained by a speedily resolution to the conflict.
“We have the very recent experience of the 2022 energy shock [following Russia’s invasion of Ukraine], but the world is different now. That shock arrived just as the pent-up pandemic demand was unleashed. Demand is much more lacklustre now. Then, governments provided heavy debt-fuelled energy subsidies to households and industrial users but with debt costs rising their appetite for more intervention will be limited.”
In its update for Q2 this year, Core Five confirmed its tender price forecast for the quarter was unchanged at 2.5% “though with greater uncertainty”.
The update added that commercial jobs have been stalled by the Middle East conflict and “shifting US trade and foreign policy have unsettled views on risk, yields, swap rates and borrowing terms, alongside renewed concerns over construction cost inflation. Positive sentiment has consequently waned, terms have tightened on live offers, and a number of transactions have stalled or collapsed.
“This has direct implications for the contractor pipeline. A subdued 2025 means order books for 2027 and 2028 are thinner than hoped and there is now broad appetite across the sector to secure work.”
It added: “Major Grade A schemes, whether new build or full reinvention of an existing building, have absorbed main contracting teams into PCSAs over the past year or so. Many have run 12 months or longer, with a handful now approaching two years while awaiting commitment to build. Delays typically stem from pre-let requirements, funding negotiations or developer hesitation around exit value, with some schemes large enough to limit the pool of potential purchasers to a handful.
“The result is uncertainty: A teams are tied to projects that may slip their committed timeframes or not proceed at all.”
Core Five also warned “the residential sector is in a very challenging place” but said there were signs of improvement in the approvals process for Gateway 2 while “co-living remains a bright spot”.
And it said that funders and developers increasingly favour pre-lets, JV partnerships or phased delivery for life sciences job while data centres and commercial office jobs still dominate the order books of Tier 1 M&E subcontractors.
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