Construction clients must focus on adaptability despite inflationary pressures easing

Business Insights

With a mixed outlook for the construction industry, Turner & Townsend is urging businesses to prioritise adaptability in their approaches to long-term projects and programmes to set them up for success.

In its Summer 2024 UK Market Intelligence report, the global professional services company is forecasting that tender price inflation will continue to fall from the highs of recent years. In 2024, within the real estate sector, this is expected to nudge down to 3.0 percent. 

This comes as construction output fell by 0.9 percent in Q1 2024 with the adverse weather conditions in February – one of the wettest months on record – making a significant impact. However, the report points to forward-looking indicators which suggest a more positive outlook. New orders have surged by 15.9 percent, supported by a boost in sales due to the improving domestic economy.

As the UK anticipates a cut in interest rates on the horizon, the professional services consultancy expects confidence in the sector to increase, stimulate activity and boost growth for 2025. However, given the uncertainty on interest rates, Turner & Townsend has kept its 2025 real estate TPI forecast at 3.0 percent.

Analysis of wider metrics found that tender price inflation was stabilising due to deflationary influences on material prices – a major driver of construction costs in recent years.

The outlook for infrastructure remains strong with several major programmes in the pipeline, including the water industry’s AMP8 and the building of Sizewell C. These programmes, along with new orders which are up by 1.8 percent, are keeping infrastructure TPI at relatively high levels of 4.5 percent for 2024, with the expectation that this will increase to 5.0 percent each year over the forecast horizon to 2028.

However, challenges still lie ahead. As a result of the record number of construction insolvencies in 2023, the consultancy firm warns that, until the economy is on surer footing, contractors and sub-contractors will likely select smaller and more manageable projects, placing pressure on capacity for major programmes.

Turner & Townsend is advising businesses to focus on adaptable, responsive approaches as they progress major programmes that will likely span multiple political and economic cycles. The report underscores the need for programmes to be set up to factor this in by embracing intelligent delivery models, strong governance structures and digital-first strategies.

Sturt Sayer, strategic lead for the northwest at Turner & Townsend, commented:

“The first quarter of 2024 has presented a mixed picture for UK construction as output continued to contract while new orders increased. We know there is demand for development as public and private sectors across the region work to spur on growth, decarbonise our real estate and infrastructure and reduce regional inequalities, but political and economic uncertainty persists at home and abroad. It is good news that the macro-economic position has improved, but the cost of deploying capital remains high and the supply chain remains volatile with all the risk and uncertainty it is having to manage.

“With a General Election on the horizon, businesses across the northwest will be hoping this will bring greater clarity on the direction of travel for policy – from industrial to energy, from rail to education and healthcare – as we go into the second half of 2024.”

About Turner & Townsend

Turner & Townsend is a global professional services company with over 10,000 people in 48 countries. Collaborating with our clients across real estate, infrastructure, and natural resources sectors, we specialise in major programmes, programme management, cost and commercial management, net-zero, and digital solutions.

We are majority-owned by CBRE Group, Inc., the world’s largest commercial real estate services and investment firm, with our partners holding a significant minority interest. Turner & Townsend and CBRE work together to provide clients with the premier programme, project and cost management offering in markets around the world.

We are passionate about making the difference, transforming performance for a green, inclusive, and productive world.