Linesight has published its United Kingdom Country Commodity Report for Q2 2023, showing that construction costs are moderating; however, ongoing interest rate increases are posing major challenges for the real estate sector. Tender price changes are predicted to see a modest increase of 3% in 2023, with similar increases of 2.75% forecast for 2024 and 2025, before a further 3% increase in 2026.
Commodity prices are falling from 2022 highs for materials such as copper, steel, cement and lumber, however labour costs remain high.
- Copper is notable for being a key element of the UK’s green transition. The price of copper declined by 8.2% in Q2 2023 but is likely to remain volatile due to the growth in the semi-conductor manufacturing, and increased activity in the high tech and energy sectors.
- The price of stainless steel has come down slightly by 0.5%, as the cost of raw materials such as nickel have dropped due to increased production levels in Asia.
- The price of raw rebar has fallen by 2.4% in Q2 2023, while flat rose by 1.5%. Producers are still struggling with relatively high production costs, and also in meeting the investment levels required to decarbonise.
- Lumber prices have fluctuated in recent months, rising in April before edging back down to drop by 0.8% in Q2 2023. Prices are predicted to fall further in line with reduced demand for residential projects.
- The price of concrete increased by 7.9% over the past quarter, due to high production costs. As energy costs come down, it is expected that savings will be passed on by producers.
- Brick prices, on the other hand, have stabilised, although they remain 50% higher than in Q1 2021. Weakening demand and gradual easing of energy costs are likely to lead to ongoing price decreases.
Looking to the report’s outline of sector-specific trends, data centres are predicted to experience an exponential growth that will accompany AI, 5G and IoT expansion. There is now an urgent need for new sites and locations to be identified, as well as skilled labour, to meet the forecasted digital infrastructure requirements.
The UK’s National Semiconductor strategy, with a package of £1bn in funding and support over the next decade, is driving growth projections. Current battery and semiconductor manufacturing projects, valued at over £10bn, are at various stages of planning and execution, and the sector is forecast to grow by 4.1% in 2023.
The UK’s aim of reaching 100% zero-carbon electricity generation by 2035 is stimulating growth in the renewable energy market. The sector is predicted to grow at a rate of 11.6% in 2023, bolstered by the UK infrastructure bank’s planned investment of £200m in the development of power storage technology.
Growth remains strong for life sciences, with the UK biotech sector witnessing steady increases in venture investment in Q2, raising £338 million, up 31% from the previous quarter and 22% higher than the same period last year.
These mission-critical sectors are relatively unhindered by shorter-term economic trends and driven by longer-term strategic developments such as technological advancement and medical research.
In commercial real estate, the global slow-down of office occupancy has had an effect on demand for space. While existing buildings are undergoing retrofitting to become more sustainable and to address increasing corporate tenant ESG requirements.
Michael Riordan, Linesight’s Managing Director, UK, said: “As commodities moderate, price fluctuations will be driven by demand from high potential growth sectors. Solid implementation plans, supported by government investment, are required to ensure that opportunities are maximized, especially in challenging financial environments. Project viability will be improved through adoption of strict project controls, with a strong focus on risk and schedule and collaborative procurement strategies.”
