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RICS: No tender price recovery until 2011

Tender prices continue to fall and may not start to recover until 2011, according surveyers have warned.

The latest five year forecast from the Royal Institution of Chartered Surveyors’ Building Cost Information Service (BCIS) says tender prices will fall 5.2% in 2009 and a further 1.8% in 2010, before rising by 3.3% in 2011. Falling tender prices will result from sharp declines in construction output through 2009, although the pace of decline is expected to fall in 2010 before growth resumes in 2011.

“Despite seeing slightly more positive data coming from the construction sector in recent months with output starting to fall at a slower rate, it is evident that the fall in tender prices will continue,” said BCIS executive director Joe Martin.

“It is clear that public finance is having a positive effect on output with recent data demonstrating that new work actually picked up in the second quarter, led by a sharp increase in the contribution from the public sector. As a result any cut in the supply of public money will have a detrimental effect on any recovery.

“Our forecast indicates that not only would tenders keep falling for longer, but any subsequent recovery would be much slower and it will be several years before we see prices reach pre-recession levels,” he said.

The latest data from the Office of National Statistics (ONS) also shows that new construction orders fell by 17% in August compared to the same period last year.

RICS senior economist Brigid O’Leary says:  “The weakness in August’s numbers is largely a result of falls in the largest two sub-sectors, infrastructure and public non-residential, which reversed the gains made in those series in July. Any recovery in the construction sector is going to be very gradual.” 

However should the recession in housing, industrial and commercial in the private sector be more drawn out than predicted in the central forecast, with growth not returning until 2012, then the price of new construction work will continue to fall through 2011 at a rate of 1.9%.

A cut in public spending would have a similar effect on tender prices, meaning tenders would suffer around a 15% peak to trough fall over a period of four years.

Such cuts would also see the rate of growth in tender prices, once it comes, move more slowly. If public spending in construction were to be cut by 10 percent per year between 2011 and 2013, then tenders would only rise by around 7.5% over the two years, 2012 to 2013, compared with around 9.5% in the central forecast.

 

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