- Arcadis' quarterly Market View report indicates a more optimistic outlook for the construction sector, with improvements in economic conditions and a stronger workload pipeline validating earlier forecasts.
- While market conditions remain challenging, a potential recovery could begin earlier than anticipated, although a significant upturn in work on site is not expected until mid-2025.
- 2024 forecasts are maintained at 1-2% for buildings and 3-6% for infrastructure.
- Looking ahead, Arcadis forecasts 5-6% inflation for buildings from 2026 and 4-7% for infrastructure projects.
- Regional activity is increasing, particularly in London and the South East, which may necessitate revisions to future forecasts if growth continues at its current pace.
Encouraging signs of recovery are emerging in the construction sector, driven by an improved economic outlook and a strengthening workload pipeline, as detailed in Arcadis’ latest Market View report. These positive developments align with Arcadis' earlier predictions, though the timing of a full recovery remains uncertain. Arcadis does not expect a significant increase in on-site work before mid-2025.
The report, titled Reasons to be Cheerful, maintains our low inflation forecast in the buildings market through early 2025, with prices increasing at 3-4% next year and from 5-6% from 2026. . Increased activity is noted in London and the South East, and we may upgrade our London region forecast if the trend continues. Patterns of infrastructure inflation remain mixed, with lower levels in the rail and road sectors and higher escalation affecting work for water and electricity networks due to demand and scarcity as large-scale programmes advance.
Labour costs are likely to drive inflationary pressures in the upcoming construction cycle, due to increasing workloads, tightening competence requirements, and fewer opportunities to source labour from overseas.
The report notes a toughening of contractors’ commercial approach to tenders. Discussions are increasingly focused on risk allocation and contractual terms, though pricing remains a critical negotiation point. Performance Bonds are more difficult to secure across many projects, yet teams have generally managed to find compromise solutions.
The report includes a focus on the implementation of competence schemes, reflecting on capacity constraints that have affected Building Control Inspection since the end of the transition period in July 2024. With the end of Grandfathering Rights for CSCS cards due in December 2024 and with many other building safety related competence schemes in development, the report highlights the need for contractors and clients to track the implementation of these new frameworks to mitigate the risk of skills shortages.
Simon Rawlinson, Head of Strategic Research and Insight at Arcadis, commented:
“The construction sector is facing a more challenging tendering market in 2024. Contractors need to adopt a more commercial approach to terms as they navigate an uncertain landscape. However, the improved economic outlook offers reasons to be optimistic as we move into 2025.”
Ian Goodridge, Market Intelligence Lead at Arcadis, added:
“The change in the interest rate cycle will be a welcome boost to the sector. However, it will still be some time before the improved levels of new orders begin to feed through to a sustained market recovery.”
Read the full report here: UK Autumn Market View | Arcadis
