Arcadis has forecast higher levels of construction inflation from 2026 onwards due to resource constraints and the impact of delayed procurements on the future shape of the supply chain
In its Summer Market View: June 2024 report, Arcadis forecasts construction tender price inflation of 5-6% from 2026 to 2028.
This forecast has risen from its Spring 2024 report, which predicted tender price inflation for the same period to be at 4%.
Arcadis’ forecast for construction infrastructure has remained the same.
Tough market conditions are expected to continue throughout 2024
In the new report, Arcadis writes that challenging market conditions will prevail throughout 2024.
Many projects are stuck at various stages of procurement, with contractor availability for the early stages of planning being a major bottleneck for construction.
Contractors’ teams are tied up with stalled two-stage procurements, which reduces their market competitiveness and limits their ability to take on new opportunities.
Ian Goodridge, Arcadis’ market intelligence lead, said: “Capacity issues caused by projects let on a two-stage basis create a ‘holding pattern’ where contractors are committed to resourcing uncertain projects.
“This situation leads to a paradox of falling workload and contractors claiming they are too busy, as the new work pipeline remains empty.
“Clients need to engage with potential bidders at an early project stage to avoid the risk of a short bid list.”
Construction inflation is increasing due to new approval processes
Arcadis has reported that 75% of high-risk residential projects needing staircase redesigns are on hold due to the Building Safety Act Gateway 2.
None of these projects have been submitted for approval yet.
With a three-month review period, it is likely that these projects will not start in 2024.
Capacity may have been lost by the time the bottleneck improves in 2025
Growth conditions are unlikely to improve this year, says the new report, and by the time the bottleneck starts to clear in 2025, more projects will be competing for resources.
The upcoming general election is also slowing down decisions and spending, creating uncertainty for investors.
It is expected that these blockers will cause prices to rise and increase construction inflation during the recovery period.
