Construction businesses urged to prioritise adaptability | Project Scotland

TURNER & Townsend is urging construction businesses to prioritise adaptability in their approaches to long-term projects and programmes to set them up for success.

The comments come as the General Election approaches as well as the company’s summer 2024 UK market intelligence report 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%.

Construction output fell by 0.9% 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%, 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%.

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%, are keeping infrastructure TPI at relatively high levels of 4.5% for 2024, with the expectation that this will increase to 5.0% 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.

James Darrie, strategic lead Scotland 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 sector businesses across the region work to spur on growth and decarbonise our real estate and infrastructure, but political and economic uncertainty remains 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 Scotland will be hoping this will bring greater clarity on the direction of travel for the country.”