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Introduction

The construction industry has been facing multiple headwinds including sharply rising input costs, a constrained labour market and an increased cost of finance, as well as falling capital values and demand uncertainty in some property sectors. As a result, the pace of construction has been subdued. 

6/6 Tender price forecasts

5/6 Policy impacts

2/6 Construction output

Construction new work and the UK Construction PMI indicate a slightly more cautious approach to commercial development than recent months. Meanwhile, housebuilding has seen a steep downturn, with housing new work dropping by 4.6% (three months to May 2023).

3/6 Commercial

Introduction

3. Commercial

1. Macroeconomic drivers

2. Construction output

4. Residential

5. Policy impacts

6. Tender price forecasts

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1. Introduction

4. Commercial

2. Macroeconomic drivers

3. Construction output

5. Residential

6. Policy impacts

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View all policy impacts

View all construction output

New construction orders in the commercial sector fell in the first quarter of the year, suggesting that the construction pipeline is contracting. Planning applications, too, were below longer-term averages.

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High tender prices look likely to persist in the face of rising input costs and a constrained labour market. Yet, as cost pressures ease, we expect increases to decelerate, despite more contract opportunities in the market. We forecast tender prices to increase by 4.5% overall in 2023 and 2.4% in 2024.

Emerging policy, specifically MEES and mandatory Biodiversity Net Gain, is steering the market towards more ‘green’ practices. Both are likely to increase the complexity of designs and will require more specialist skills and resources, as well as magnifying accountability. Construction costs are likely to increase as a result, and the planning process may slow with pressures on supply.