Q4 2023

TPI Survey Feedback


Until recently, workloads have been sustained by a busy period of strong market activity, but as construction costs continued to rise and higher financing costs became more restrictive, an increasing proportion of schemes have been put on hold.

Despite evidence of an overall slowdown in construction activity, sentiment over future workload growth is mixed. This is a potential reflection of the broad mix of project types and sectors being monitored. Workloads within the more active sectors (eg commercial office, life sciences and healthcare) were reported as being ‘steady’, with most expecting workloads over the next 12 months to either remain the same or grow between 0-5%. Conversely, there is a greater sense of pessimism regarding future workloads in sectors where construction activity is presently stagnating or falling (eg residential, hotel, leisure and hospitality). As major projects in these sectors reach practical completion, many cautioned there is little of significant size on the immediate horizon to replace them.

Many respondents noted that workload volumes at the early planning stages of development remain robust. However, the pausing of these schemes prior to the construction stage (due to viability concerns and cost pressures making schemes unworkable) have prompted concerns about the conversion rate of these opportunities.

Getting past feasibility appears to be less of an issue in the commercial office sector. The strong pipeline across the sector has been supported by a pick-up in new enquiries and a greater appetite to commit to these schemes. Clients remain keen to refurbish their space to appeal to tenants/end-users. The carbon agenda remains a key driver of activity in this space and as leases expire across developers’ portfolios, many will seek to reduce operational carbon emissions across their portfolio through numerous plant replacement projects.

In the residential sector, numerous schemes have stopped following interest rate-driven drops in demand and pressures caused by the introduction of the second staircase rule (for new buildings above the 18-metre height threshold). Schemes are pausing as they are redesigned, adding cost and reducing development value due to the loss of saleable space.

Stalled projects could come back online if interest rates peak, the economic climate begins to improve, and construction cost inflation continues to soften. In the interim, strong retrofit activity and repurposing of existing assets will present opportunities and help support workloads.

Market Conditions

Those surveyed suggest that the true impact of interest rate hikes will become evident through more competetive tender pricing in 2024 and beyond, as tender opportunities fall and material costs plateau. Labour cost inflation will steady but remain a key underlying factor in overall tender price inflation.

In our Q4 survey, there was yet another shift in the perception of future market conditions. Greater proportions of respondents expect lower market activity and greater tendering competition over the next six months.

Perceptions of Market Conditions

Anecdotal evidence to support this shift in market conditions included:

  • Main contractors changing their focus to different markets/sectors (eg Resi-led main contractors seeking work in growth sectors due to a lack of new projects coming forward).
  • Some clients cutting back investment plans due to a combination of high interest rates, changing building regulations and high land values – all putting pressure on scheme viability.
  • Increased frequency of schemes being delayed, reconfigured or not materialising.
  • As gaps in order books emerge, contractors are becoming more proactive in seeking work and responsive to invitations to tender.
  • Enhanced due diligence on schemes.
  • Growing number of contractors are restructuring their businesses to improve efficiencies in anticipation of a slowdown.
  • As construction starts to slump, there is growing concern about the risk of insolvencies as firms take additional measures to mitigate against failures.

However, market conditions differ widely from sector to sector. Many contractors working in several key sectors continue to benefit from full order books and high workloads, allowing them to maintain a degree of selectivity on tenders. In the more active sectors, Tier 1 contractors are struggling to service projects well from a pre-construction basis and are reporting difficulties securing competitive tenders from their supply chain, often blaming a lack of labour resource. As such, there is a two-speed market emerging, as certain sectors weather the economic pressures better than others.