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Rising material costs set to define the construction market for the next three years

With the UK construction industry recovering faster than expected, Arcadis, a leading company delivering sustainable design for natural and built assets, has cautioned that the window of opportunity for investment in ‘shovel ready’ schemes could close very quickly as the industry becomes overwhelmed from the demand.

This enormous demand and rising material costs indicate that prices could still rapidly increase, making inflation a defining feature of the market over the next three years.

Infrastructure is especially vulnerable due to the pressure around material availability and a shortage of specialist skills – hence why price increases of 3% and 5% are being forecasted for 2021 and 2022 respectively.

For the buildings sector, growth in regions are predicted to be higher than in London.

The analysis comes from Arcadis’ latest Spring 2021 Market View, Window of Opportunity. The quarterly analysis of the UK construction market looks across sectors and regions to deliver tender price forecasts to inform those of what is going on in UK construction.

Agnieszka Krzyzaniak, market intelligence lead at Arcadis, said: “At the moment, there is still some spare capacity available, but the shortages of construction materials create inflationary conditions that have already begun to outweigh any deflationary factors.

“Clients need to move quickly to take advantage of this window of opportunity. Any delays increase the potential exposure to much higher construction costs than initially planned for, as higher inflation becomes the new normal.”

A further consideration for the industry is the increase in focusing on net zero, after the government’s sixth carbon budget and adoption of a 78% reduction in carbon emissions by 2035.

Ben Harris, UK climate change and sustainability director at Arcadis, said: “When it comes to net-zero, we need to make every penny count, managing costs and delivering at the scale and speed necessary to meet the challenge.

“As construction starts to reboot, it is crucial our industry embeds sustainability into its projects, and we take advantage of the reduction in the cost of key technologies in achieving net-zero goals. As prices of carbon-intensive products rise, a failure to decarbonise will increasingly threaten the economic viability of construction projects. There is an imperative to act now to build capacity, and the sooner this starts, the better.”

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