Building costs will increase by 15% over the next five years, while tender prices will rise by 17% over the same period, according to the latest five-year building forecast from the Building Cost Information Service.

After falling by 2.1% in 2023, new construction output is expected to contract by a further 3.2% in 2024 before returning to growth. Total new work output over the forecast period (2024-2029) is forecast to grow by 21%.

Dr David Crosthwaite, chief economist at BCIS, said: “We’re seeing recessionary pressures feeding through to construction from the wider economy; the cost of borrowing impacts on new work, particularly in the private sector because it’s a major barrier to investment in a stagnant economy.

“That’s why we expect private industrial, commercial and housing work to bear the brunt of the declines in output this year.”

Annual growth in tender prices has continued to ease, falling from 8.6% in 1Q 2023 to 2.9% in 1Q 2024. BCIS expects annual growth in tender prices to continue to fall, reaching 1.6% by 4Q 2024.

On the input costs side, annual growth in the BCIS Labour Cost Index is forecast to grow by 18% between 1Q 2024 and 1Q 2029. Site rates have been rising in line with inflation and the pace of annual growth in labour costs is expected to slow down.

The BCIS Materials Cost Index has shown negative annual growth for the past two quarters and is forecast to drop further by 0.8% in 1Q 2024. Over the next five years, BCIS forecasts it to grow by 13%.