Building Costs and Tender Prices Rise in Five Year Construction Forecast

BUILDING COSTS will increase by a predicted 14% over the next five years to Q2,30, while tender prices will rise by 15% over the same period, according to the latest construction forecast data from the Building Cost Information Service (BCIS).

New work output is also expected to grow by 18% between 2025 and 2030.

Dr David Crosthwaite, BCIS Chief Economist

Dr David Crosthwaite, Chief Economist at BCIS, comments: “At the mid-point of the year, the construction sector is still stagnating, with output growth subdued. Confidence continues to be weighed down by a combination of domestic uncertainty and wider global pressures.

“That said, the 27% quarterly rise in new orders we saw in the first quarter, particularly in infrastructure and industrial sectors, offered a welcome indication that demand could be starting to recover.

“How far that optimism carries through will depend heavily on the translation of the government’s Spending Review and 10-year strategies into actual activity. For all the announcements made by the government in the last few weeks, we still don’t have sight of the long-promised updated project pipeline. A greater degree of certainty around funding and delivery timelines remains key to lifting the sector out of its current malaise.”

Five Year Forecast

The BCIS All-in Tender Price Index, which measures the trend of contractors’ pricing levels in accepted tenders, i.e. the cost to client at commit to build, saw annual growth of 2.3% in Q2,25, the same as was recorded in the first quarter of the year.

On the input costs side, labour remains the main driver of project costs, with increases to employers’ National Insurance Contributions and the National Living Wage feeding into an expected 7.1% annual increase in the BCIS Labour Cost Index in 2Q2025. The index is forecast to increase overall by 16% through to Q2,30.

David added: “The risks to this forecast remain on the upside, as skills shortages remain prevalent in the market and continue to impact projects. Similarly with our materials costs forecast, the expected uptick in market activity could put inflationary pressure on the cost of construction materials.”

Materials cost inflation has been moderating since peaking in 2022 and annual growth in the BCIS Materials Cost Index was in negative territory from the third quarter of 2023 to the second quarter of 2024. BCIS expects the index to grow by 13% over the forecast period.

Total new work output fell by 5.1% between 2023 and 2024 and BCIS is predicting subdued growth in new work output throughout 2025. ONS data showed a 0.9% increase in new work output in the first quarter of 2025 compared with Q4,24, and a quarterly increase of 1.7%. The greatest annual increases in Q1,25 were in public non-housing, which includes education, health and justice projects, and in private industrial.

David said: “We are expecting more robust output growth from next year and over the rest of the forecast period, much of which will be fuelled by a recovery in housing. Private funding for infrastructure projects will be crucial, especially with the state of public finances putting much public spending at risk.”

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