London fit out report - winter 2016/17 survey
Our winter survey of tier one and tier two suppliers tested market sentiment, expected tendering conditions and expected price rises.
After months of volatility after the Brexit referendum result, a sense of calm in the fit-out market has formed and the market looks to have stabilised. In our autumn survey, there was concern over prevailing market conditions, highlighted by increased competitive bidding practices. Our winter survey shows activity over the three months to December remained largely the same, but confidence is returning with a number of large fit-out projects in the pipeline for 2017.
The market continues to adopt a safety first approach to the referendum vote and contractors appear more willing to compete on projects to secure future workloads. There has been a modest decrease in prices through competition, yet supply chain frailties persist and import cost increases add further burden to tender cost expectations.
Inflation levels in the London fit out market closed out at 5 percent for 2016. Our survey reveals that inflation levels are still expected to be between 4 percent and 5 percent for the next 24 months. This is driven by continued labour and material cost increases as a result of a shortages of skilled labour in key trades and increasing input costs.
- 5.0% Tender price inflation 2016
- 4.4% Tender price inflation 2017
- 4.5% Tender price inflation 2018
In this issue we explore the trends over the past three quarters and what this means for clients procuring in 2017.
The initial apprehension felt in the fit-out market post-Brexit and throughout autumn 2016 seems to have abated slightly. Market indicators suggest that there has been a move back towards levels stated in summer 2016. Both summer and winter surveys suggest that contractors believe the market outlook to be warm, with 50 percent of respondents projecting this trend. Uncertainty is still very much in the air, and it is expected that fluctuations will persist as further knowledge of the Brexit process comes to light, allowing for investment decisions and workloads to be outlined with greater clarity.
Tendering conditions in Q4 2016 showed that the appetite for competition has increased, with keener prices being submitted. The proportion of respondents suggesting ‘warm’ tendering conditions in Q3 2016 was 72 percent. In this survey it has reduced by 30 percentage points to 42 percent. This demonstrates that although market confidence has stabilised, competition is still fierce. Clients going to market in the early part of 2017 are therefore likely to see more competitive bidding.
Download the full report to find out about inflation rates, industry commentary and key challenges and indicative costs across category A and B.