Based on our latest TPI survey, workloads are generally expected to remain consistent over the coming year, but the challenges of high interest rates, a volatile economy and a general election may impact market activity. While the residential market is slowing due to regulatory and viability challenges, activity in the commercial office sector remains buoyant and is showing few signs of slowing down.
Workloads in 2024 and beyond will largely be determined by the availability of funding and the viability results of feasibility studies. Some projects are unlikely to move forward into procurement whilst interest rates remain high. Clients will also want to see greater certainty on regulatory issues (eg regarding Gateways two and three of the Building Safety Act, the second staircase rule etc) before progressing schemes.
Market conditions saw a notable shift in our previous (Q4 2023) TPI survey, with greater proportions of respondents expecting reduced market activity and greater tendering competition over the next six months. Sentiment has changed little in our latest (Q1 2024) survey.
Over a third of the respondents hold a neutral view on the current market conditions. However, a significant proportion (33.3%) anticipate that fewer tendering opportunities will lead to a slightly more competitive bidding environment.
The UK construction industry continues to grapple with uncertain demand, high construction and financing costs, as well as skilled labour shortages. However, the volatility experienced over the last year, largely due to extreme geo-political and economic factors, has eased. As stubborn material price inflation pressures receded in 2023, tender pricing started to cool and it is expected 2024 will see more modest levels of inflation.
The shortage of labour continues to be the primary driver of inflationary pressure, but this is likely to be counterbalanced by softer demand. The prospect of a general election towards the end of 2024, and potentially a new Government, could also weigh on demand in sectors where viability is finely balanced.
With the market still relatively busy with existing workloads, many contractors will focus on chasing profitable work rather than turnover in the short-term. However, with less new work coming through to tender, contractors in weaker growth sectors may start to become a little more competitive in 2024.
Prudent contractors will remain risk averse and price work carefully when faced with uncertainty. The high number of construction insolvencies is putting pressure on the supply chain. Recent high-profile administrations have elevated this to a key risk factor for contractors and project delivery. Contractors are acutely aware of these risks and are taking them into account when pricing their work.
For many, the immediate future will be one of slowing market activity and softer demand. However, a shrinking supply chain will reduce pressure on contractors to chase turnover. Those pockets of the industry that are expected to remain busy in 2024 (eg commercial fit-out and data centres) will invariably see less competitive pricing.