Contractors may face damaging market volatility until at least 2021 due to the Covid-19 crisis, according to Mace’s latest Market View for Q2 2020
Mace’s report proposes that as the economy begins to re-stabilise, tender prices will reduce by 2% in London and 2.5% elsewhere in 2021, due to contractors restructuring and increased supply chain appetite to secure workload.
With construction output declining 40.1% in April 2020, the industry is expected to adopt a more collaborative approach to tackle this challenge.
Outlook for construction
Forecasts for economic growth are undermining the outlook for construction. When combined, they show GDP at the end of 2021 will be lower than at the end of 2019, ruling out a V-shaped recovery and suggesting a substantial drop in new projects over the next 18 months.
Highest output concerns emerge from the housing sector, which accounted for 40% of all new work in 2019, as well as the commercial sector which accounts for around one quarter of all new work.
To respond to continued uncertainty, Mace’s report suggests that contractors and clients should review their procurement strategies, navigating risks for labour and materials.
Steven Mason, managing director for cost consultancy at Mace, commented: “As the construction industry continues to adapt to the full impact of Covid-19, we are faced with a period of market uncertainty and potential volatility that is unprecedented in modern times.
“The usual inflationary or deflationary pressures of construction input prices that have such major influence on market forecasts have, at least in the short term, been heavily disrupted due to material and labour shortages, prices spikes and significant uncertainty in output and productivity levels.
“We expect this uncertainty to continue until the final quarter of 2020 along with the level of suppressed tender prices that such market sentiment usually brings.”