TPI Survey Feedback

Workload

There has been a steady stream of enquiries for new work coming through in the first three months of 2021 as backlogged projects that were previously on hold came back on stream. This bodes well for a strong pipeline but of course not all enquiries will convert. Some respondents noted that there is good project visibility for the remainder of the year but 2022 is more difficult to see as clients are taking longer to commit to replacement projects. Project funding is also taking longer than usual and there is more caution around instructing each phase of design.

More opportunities are expected in the office refurb/fit-out market (to accommodate for hybrid/flexible working) and also to re-purpose retail units as the sector looks to diversify. The residential, senior living, infrastructure, food retail sectors are likely to see high levels of activity. Conversely, some respondents thought there are likely to be fewer opportunities in the hospitality sector due to reduced levels of investment. Construction activity in the education sector is also expected to slow while universities review their requirements for teaching space post COVID-19 and more services migrate online, potentially slowing campus extension/development.

With the start of the new financial year, public sector funding kicks in which should help boost workload from publicly funded projects with the regions expected to be the biggest beneficiaries of the Government’s levelling-up agenda. Our partners in the North of England and the Midlands also indicated that international investors are showing strong interest in these particular regions as demand for north-shoring gains momentum and businesses consider migrating to lower-cost areas in the North/Midlands.

Market Conditions

As the economic recovery takes hold, we envision steady growth in construction activity but this is expected to put upward pressure on wages and material prices.

Some contractors are pricing very competitively to secure work and fill their order books but this market dynamic is expected to shift soon. As the economy stabilises, pricing levels are likely to increase as the supply chain gets busier and contractor availability narrows. How quickly competition normalises and to what extent will depend on the sector, client and location of the works.

Most contractors are reporting that they are currently busy and certain trades are seeing pricing and lead-in periods increase significantly. Steelwork contractors, for example, have seen prices rise substantially as a result of higher raw material prices which have pushed up the cost of rebar and structural steel. Due to the price volatility, contractors are often only holding prices for a week at a time. Whereas internal fit-out trade contractors are being more competitive with pricing and are frequently being pushed to provide discounts to secure workload.

While some sub-sectors are currently experiencing competitive bidding activity (eg the commercial office market), contractors have generally become more selective with tenders in recent months, often acknowledging how busy their pre-construction/estimating departments are. Despite this, contractors generally remain keen to secure the ‘right projects’ to reinforce their order books and will put together competitive bids to do so, which has helped keep tender price inflation in check.

Our recent external poll that went out to some of the UK’s largest main contractors revealed that their secured project pipelines appear to be healthy or at least where they expect them to be at this point in the year. Delayed work from 2020 that has drifted into 2021 and schemes restarting after being paused may have helped in this respect. However, they did note that activity was very much sector-dependant. The commercial sector has become increasingly competitive in recent months due to fewer schemes going out to tender whereas an abundance of work in the residential sector means that contractors can take a slightly different attitude to risk and maintain margins or chose not to tender. There is certainly no sense of desperation among most Tier 1 main contractors and they only proceed to tender if the project and procurement route is right for them. There was a general expectation among respondents that more schemes will come to market as the year progresses, enabling some to be very selective in their tendering activities.

On the client side a sense of caution prevails but confidence has grown over the last few months and many are keen to push ahead with their investment plans and want to be on site as soon as possible.