Face-to-face
As we go forward in 2010, the biggest question posed for building work bids is not just whether contractors offer best value for money on tender prices, but will they still be in business in six months’ time?
Narrow or non-existent profit margins are putting more and more building and trade contractors nearer insolvency as the industry reduces capacity still further in 2010.
Even though the UK has officially come out of recession, the construction sector often lags behind others in recovering from a downturn so we may see an increase in business failures before things significantly improve.
Tender prices fell further in 2009 than everyone predicted – by 13% according to King Sturge’s research team.
More than half of this occurred in the first quarter of 2009 but continued throughout the year as a lack of demand dampened contractor’s preliminaries profits.
Material prices were volatile throughout last year with some materials now rising, particularly as the rest of the world comes out of recession.
2010 is, however, likely to still see depressed demand for construction, with costs levelling out later in 2010 as material prices rise across the globe and a modest increase in demand is experienced for 2011.
The latest figures from Building Cost Information Service (BCIS), supports this, as they have reported a further fall of 4% this year for tender prices before returning to growth in 2011.
So for cash rich developers and property owners looking at new build or refurbishment, the message clearly has to be build now.
I believe that we will start to see a rise in activity and prices by the end of this year, and once developers are brave enough to dip their toes in the water, a bounce in tender prices could well be the result.
Certainly the private commercial market has been hardest hit and it will be a very brave developer that returns to speculative build. However we believe we may be seeing more ‘build to suit’ schemes in the industrial market.
The refurbishment market and particularly the carbon retrofit market is also expected to gain pace as landlords look to maximise their assets.
However, a rise in material costs will have an impact on quality as margins become reduced.
Strong project management is essential to manage the works and maintain quality standards when costs are rising as contractors will be looking for ways to cut costs and improve the bottom line.
The situation remains the same when looking ahead to 2010/11 with increasing rises in tender prices as demand begins to pick up again.
Once the market picks up there will be fewer contractors to service it and therefore less competition will push up prices and an experienced guiding hand will also be required.
David Hastings is head of King Sturge’s building consultancy team
