Construction prices rise despite credit crunch

Construction prices are set to rise by 4 to 7% during 2008 and by the same amount again in 2009, according to a market forecast compiled by Davis Langdon.

Prices across the country rose by up to 6% last year, although this was exceeded in some markets, such as City office development.

Looking ahead the report says a tail off in demand, caused by the credit crunch, will be countered by high materials prices.

Timber prices rose some 20% last year and steel prices were up 12%. In the last week Corus has increased the pressure by announcing further hikes in steel prices.

The decline in the value of the pound will also be a factor, with imports accounting for 25% of construction materials used in the UK.

Peter Fordham of Davis Langdon commented: “The office market appears to have peaked and funding for speculative developments will be harder to come by.

“The retail market is likely to cut back development, the private housing sector will reduce owing to few buyers and the buy-to-let market will shrink rapidly.”

On the plus side public sector spending is expected to rise and there have been fewer reports of projects being cancelled and delayed.