During the three years to 2017, the price of general contractor services has increased an estimated 2.0 percentage points. This substantial rise in prices has largely resulted from a strong resurgence in construction activity, which has in turn been supported by low interest rates.
The value of construction has been rising strongly in the past three years, fueled in part by low interest rates, which have encouraged businesses to invest in construction projects. These factors have led to an increase in demand for general contractor services, which has incited price growth and hindered buyer power. Additionally, growth in the cost of construction inputs, such as cement, has contributed to price growth. Although steel prices have been falling during the period, cement prices have been growing and supporting rising purchase costs for suppliers. In turn, suppliers have passed their higher costs to buyers in the form of higher prices.
However, suppliers must constantly vie to win construction bids. Buyers can leverage the substantial availability of alternate suppliers to obtain the best price. The resulting high level of market competition has forced suppliers to keep price growth steady. As a result, buyers have been benefiting from low price volatility during the period, despite fluctuations in demand for contractor services. Low price volatility reduces the risk of price shocks and allows buyers to better budget for market services. Nevertheless, prices are expected to continue climbing in the three years to 2020, so buyers are encouraged to secure services sooner than later.
In the three years to 2020, the price of general contractor services is forecast to rise another 0.9 percentage points. Price increases will continue to be supported by the rising value of construction as well as a return to growth in corporate profit. Moreover, the prices of cement and other input costs are also expected to grow steadily during the next three years, further driving price increases.
Through 2020, the value of construction is forecast to rise, albeit at a slower pace than in the past three years. Growth in corporate profit during the next three years is expected to support the continued rise in construction activity. However, interest rates are also expected to gain momentum during the period. Rising interest rates will increase the cost of financing construction projects, thus making buyers somewhat reluctant to embark on construction-related projects. As a result, growth in demand and prices for general contractor services will be slow.
Unfortunately for buyers, rising input material costs will play a considerable role in service price growth in the three years to 2020. Steel prices are forecast to increase considerably. In addition, the price of cement, another key input material, is expected to continue its growth, effectively increasing the cost of providing construction services. Rising material costs will be passed to buyers in the form of higher service rates.
However, competition among suppliers will remain strong in the three years to 2020, which will foster price-based competition and keep price volatility low. Therefore, although buyers will pay higher service prices, buyers can rest assured that prices will not swing unexpectedly and render them unable to complete their projects. Nevertheless, buyers that secure their services sooner than later may gain some cost savings before prices rise in the coming years.