Prices to jump markedly from next year as recovery quickens, consultant adds

Labour inflation surpassing material inflation has left construction prices at a historic high in London, according to T&T Alinea.

The consultant said the strength of economic recovery will depend on a number of factors including the future of conflicts in Ukraine and Gaza, the results of elections from around the world, including votes in the UK and US, and inflation levels.

Persistent interest in the capital city from international investors has kept tender price inflation at a lower level this year as London continues to receive 45% of the country鈥檚 overall foreign direct investment.

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Tender prices in London will head north next year as the market recovers, T&T Alinea said

But T&T Alinea predicted prices to rise faster in 2025 as the market recovers, making a 2% prediction for London real estate projects tender price inflation for 2024, rising upwards to 3.5% by 2026.

T&T Alinea foresaw a more optimistic rebound in pricing if the UK economy begins to improve following sluggish growth in GDP and if investor confidence is revived.

Despite a notable decline in new orders in London last year, the T&T Alinea report suggested that growing enthusiasm in house price predictions from volume house builders and more optimistic PMI data may mean a higher volume of work is nearing.

Meanwhile, Gardiner & Theobald similarly predicted tender price inflation in London to be at 2% for 2024 but only rising to 2.5% by 2026, 1% lower than T&T Alinea鈥檚 forecast.

The prediction is based on the consultant鈥檚 estimation that inflation has continued to outweigh deflationary measures combined with various geopolitical forces presenting an upside risk on certain imported materials including steel.

Katie Coulson, partner at G&T, said: 鈥淟ooking ahead to the remainder of 2024 and into 2025, commodity prices are forecast to slightly decrease according to the World Bank, but will remain at 38% higher than before the pandemic.鈥�

G&T forecast that UK construction output will fall to 2.2% in 2024 amid a tightened labour market and supply chain disruption at the Red Sea, but anticipated a gradual recovery in 2025/2026.

鈥淐onstruction vacancies are down from the 2022 peak, primarily due to weakening wage growth and softer demand,鈥� said Michael Urie, senior market analyst at G&T. 鈥淭his has helped ease pressure on construction wages, which rose by just 2.1% in the year, the smallest increase in three years.鈥�

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