Perspectives

Material price inflation drives tender forecast increase

3 min read

In the latest edition of Market View, Mace revises up its forecasts for tender price growth in response to material price increases.

In its Q3 publication, Mace projects that tender prices will grow by 3% this year, an upwards revision of 1.5%. We have also revised next year’s forecast by 1.5%, pushing it up to 3.5%.

Driving this increase is the ongoing rise in material prices, which were 6.6% higher in June than they were in March, with a further month-on-month jump of 4.5% in July.

Shipping issues between China and Europe are not expected to resolve this year and alongside a domestic shortage of HGVs, this will continue to have an impact, not just on material and tender costs, but on delivery timescales and construction output. These problems may have dragged output down in April, May and June, but new orders achieving their best level in four years suggests this reduction should be temporary.

Looking further ahead, Mace’s Market View considers the impact of construction sector pay on tender prices. With vacancies jumping to 38,000 in the three months to July, over 10,000 more than seen on average in the few years before the pandemic, this has the potential to inflate prices going forward.

Following a difficult year and a recent push to get workers back into the office, a Mace-led analysis of the fit-out market shows that prospects in the medium-term look encouraging.

This outlook has been reinforced by the number of new orders coming through and a growing focus on Environmental, Social and Governance, with firms looking to repurpose existing office space to accomodate hybrid working and bringing existing building specifications up to standard in line with tighter energy requirements.

Steven Mason, Managing Director for Cost Consultancy at Mace, said:

“While there are indications that some material prices may be starting to ease, there is increasing expectation that the labour market is starting to tighten with the potential to drive costs up further.

As market confidence and the work pipeline improves, the supply chain has become more reluctant to absorb these sustained increases in input costs. The underlying expectation that market activity will continue to increase as the workforce starts to return to the workplace only heightens the sense that tender prices will continue to rise as we progress towards the final quarter of the year, and we have adjusted our forecasts for 2021 upwards to reflect this.”