Costing Steelwork 19: Market update | Features | Building

2022-06-15 12:11:51 By : Ms. lily Xu

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Costing Steelwork is a series from Aecom, BCSA and Steel for Life that provides guidance on costing structural steelwork. This quarter provides a market update and updates the five cost models previously featured in Costing Steelwork

Construction sentiment settled at a long-run equilibrium level at the end of 2021 – a Goldilocks level, neither too hot nor too cold. After an undulating year, the industry has found a broadly steady state. Construction activity is expected to plot a stable course over the first half of 2022. Existing workload momentum will ensure that activity holds up over the industry as a whole, but sector variance will continue – reflecting broader economic trends. Nevertheless, the cumulative effect of the last two years – in addition to the structural and systemic industry issues that pre-date the pandemic – mean there is work still necessary to recover lost ground. General business sentiment gained ground, reflecting the improved but not stellar economic activity. It is widely reported that supply issues continue to act as a drag on output and production efficiency. On-going constraints from labour, materials and components shortages are reported across most economic sectors.

The Office for National Statistics reported recently that all work construction output is now higher than it was immediately prior to the pandemic, with the output rebound regaining momentum after some fitful periods of recorded output in 2021. An important additional comparator for current workload is to all work output recorded in 2019. Evidently, the industry has a way to go still to match this level of activity before the pandemic began. New work output in Great Britain at Q3 2021 was broadly 10% higher than at the same point in 2020, in constant prices. However, it was 7% smaller than for the same quarter in 2019. Until pandemic effects wash through the yearly change calculations, it is instructive to compare current levels of industry workload to steady state 2019 output values, in order to understand the true levels of activity now. At a sub-sector level, infrastructure workload is digging the industry out of a hole. By way of a counterfactual, were this sub-sector currently posting output nearer to its long-run 10-year average, overall new work construction output across the country would be a long way short of the pre-pandemic peak level of H2 2019.

Input cost pressure remains elevated and in certain cases is still acute. Q4 2021 saw this stress dissipate slightly across more of the basket of items comprising Aecom’s composite building cost index. Nonetheless, the index increased by 10% in the 12 months to Q4 2021. The calendar year average rate of change of 8% for 2021 versus 2020 is the highest in Aecom’s building cost index for over 30 years. The range of inflation change has narrowed across the basket comprising the index, with fewer items at the extremely high rates of changes recorded in previous quarters. Nonetheless, there are still many items where inflationary pressures are extreme compared with historical norms. Despite the narrowing spread of inflation rates for individual components, the aggregate headline run rate will stay elevated over 2022, notably so through the first quarter of this year, and most likely over the second quarter too.

Metals and timber components are still the classifications with the highest rates of change over the year. Labour rates continue to rise steadily, reflecting robust workforce demand, and a very high number of construction vacancies. An aggregate measure of site trades recorded a year-on-year change of 4.7% between Q4 2020 and Q4 2021. This calculation includes some carry-over effects from 2020, so a comparison against a pre-pandemic year sees a 2% increase versus Q4 2019. Wage pressure is not likely to fade, unless there is a significant adverse change in workload trends or output over 2022.

Aecom’s tender price inflation index rose by 7% over the 12 months to Q4 2021. This is the highest rate of yearly tender price change since 2015 and 2016, when the post-financial crisis construction recovery was in full swing. Price momentum gathered pace in H2 2021, buoyed by good demand and the push from all areas of the supply chain to recover higher input costs. Absorption of cost increases across the supply chain was a reluctant position enforced by high uncertainty during the pandemic. But this effect is now dissipating to a large degree, which pushes more of this input cost inflation through into higher tender prices. The pricing power pendulum has swung back towards the supply chain as companies find a balance between navigating the pandemic and on-going business operations.

Improving industry confidence has pushed up overheads and profit levels, with preliminaries also seeing rising trends. Similar pressures exist for the indirect cost side of commercial pricing, as the demand for staff and skills impacts much of the industry. Procurement routes are flexing in both subtle and overt ways, to assist the successful route to market for projects and programmes. Fixed-price contracts are less likely to be accepted as a matter of course now. Programme durations will be subject to more scrutiny and negotiation. Longer delivery times will result in extended build programmes. Historical productivity norms are not necessarily a given, due to a broad array of procurement and operational issues occurring at the same time.

Inflationary pressures will remain throughout 2022, as this collection of constraints and challenges continue to affect the economy and the construction industry. Further, input cost pressure will be a key operational and financial issue to grapple with in the first half of 2022 as rising input cost trends increase the pressure on working capital requirements – whether through the use of existing company cash reserves, adjustments to payment terms, or through new or extended lines of credit. Strong balance sheets and focused financial management are crucial to navigating 2022. Margin erosion is also likely to be referenced more often, given the lagged effect between the purchase of inputs and the selling of a finished product.

Aecom’s baseline forecast for tender prices are a 5% increase from Q1 2022 to Q1 2023, and 3.5% from Q1 2023 to Q1 2024. Growing confidence and demand for construction services, along with rising input costs, all contribute towards the higher likelihood of strong price inflation being maintained. Risks to pricing remain to the upside across the next 12 months, and similarly over the second forecast period. The baseline forecast core assumptions are an inconsistent recovery across the economy, some variability in construction sector pricing as a result of differing output trends and related competition levels, and enduring operational disruption arising from the permanent changes to the UK’s internal and external trading status.

Cost information is generally derived from a variety of sources, including similar projects, market testing and benchmarking. Due to the mix of source information it is important to establish relevance, which is paramount when comparing buildings in size, form and complexity.

Figure 2 represents the costs associated with the structural framing of a building, with a BCIS location factor of 100 expressed as a cost/m² on GIFA. The range of costs represents variances in the key cost drivers. If a building’s frame cost sits outside these ranges, this should act as a prompt to interrogate the design and determine the contributing factors.

The location of a project is a key factor in price determination, and indices are available to enable the adjustment of cost data across different regions. The variances in these indices, such as the BCIS location factors (figure 3), highlight the existence of different market conditions in different regions.

1. Identify which frame type most closely relates to the project under consideration

2. Select and add the floor type under consideration

3. Add fire protection as required.

For example, for a typical low-rise frame with a composite metal deck floor and 60 minutes’ fire resistance, the overall frame rate (based on the average of each range) would be:

The rates should then be adjusted (if necessary) using the BCIS location factors appropriate to the location of the project.

Steel frame to low-rise building 

Steelwork design based on 55kg/m2

Steel frame to high-rise building 

Steelwork design based on 90kg/m2

Steelwork design based on 110kg/m2

Composite floors, metal decking and lightweight concrete topping

Two-way spanning deck, typical 3m span with concrete topping up to 150mm

Precast concrete composite floor with concrete topping

Hollowcore precast concrete planks with structural concrete topping spanning between primary steel beams

Fire protection to steel columns and beams (60 minutes resistance)

Fire protection to steel columns and beams (90 minutes resistance)

Large-span single-storey building with low eaves (6-8m)

Steelwork design based on 35kg/m2

Large-span single-storey building with high eaves (10-13m)

Steelwork design based on 45kg/m2

This quarter’s Costing Steelwork provides an update of the five previously featured cost comparisons covering: offices, education, industrial, retail and mixed-use

These five projects were originally part of the Target Zero study conducted by a consortium of organisations including Tata Steel, Aecom, SCI, Cyril Sweett and the BCSA in 2010 to provide guidance on the design and construction of sustainable, low- and zero-carbon buildings in the UK. The cost models for these five projects have been reviewed and updated as part of the Costing Steelwork series. The latest cost models as of Q1 2022 are presented here. 

Christ the King Centre for Learning, Merseyside

Below is an update to the offices cost comparison originally published in the Costing Steelwork Offices feature in Building magazine in April 2017.

One Kingdom Street, London, key features

Two structural options for the office building were assessed (as shown in figure 4): 

The full building cost plans for each structural option have been reviewed and updated to provide current costs at Q1 2022. Over the course of the year increased costs have been largely offset by contractors working on reduced or no margin. The costs, which include preliminaries, overheads, profit and a contingency, are summarised in figure 4.

The cost of the steel composite solution is 5% higher than for the post-tensioned concrete flat slab alternative for the frame and upper floors, but 2% lower on a total building basis. The lighter frame and faster erection result in reduced foundations and a shorter programme. The latter is the main reason for the lower cost.

Below is an update to the education cost comparison originally published in the Costing Steelwork Education feature in Building magazine in July 2017.

Christ the King Centre for Learning, Merseyside, key features

Three structural options for the building were assessed (as shown in figure 5), which include:

The full building cost plans for each option have been updated to provide current costs at Q1 2022. The comparative costs highlight the importance of considering total building cost when selecting the structural frame material.

The concrete flat slab option has a lower frame and floor cost compared with the steel composite option, but on a total-building basis, the steel composite option has a lower overall cost of £3,556/m² against £3,578/m2². This is because of lower substructure and roof costs, alongside lower preliminaries resulting from the shorter programme.

Below is an update to the industrial cost comparison originally published in the Costing Steelwork Industrial feature in Building magazine in October 2017.

Distribution warehouse in ProLogis Park, Stoke-on-Trent, key features

Three frame options were considered:

The full building cost plans for each option have been updated to provide costs at Q1 2022. The steel portal frame provides optimum build value at £816/m2; glulam is least cost-efficient. This is primarily due to the cost premium for the structural members necessary to provide the required spans, which are otherwise efficiently catered for in the steelwork solution.

With a hybrid, the elements are from different suppliers, which raises the cost. The northlights option is directly comparable with the portal frame in relation to the warehouse and office frame. The variance is in the roof framing as the northlights need more of this. Other additional costs relate to the glazing of the northlights.

Below is an update to the retail cost comparison originally published in the Costing Steelwork retail feature in Building magazine in January 2018.

Three frame options were considered (as shown in figure 7) to establish the optimum solution for the building, as follows:

The full building cost plans for each option have been updated to provide costs at Q1 2022. The steel portal frame provides the optimum build value at £2,957/m², with the glulam option the least cost-efficient. The greater cost is due to the direct comparison of the steel frame solution against the glulam columns and beams/rafters. A significant proportion of the building cost is in the M&E services and fit-out elements, which reduce the impact of the structural changes.

The northlights option is directly comparable with the portal frame in relation to the main supermarket – the variance is in the roof framing as the northlights require more. Additional costs beyond the frame are related to the glazing of the northlights and the overall increase in relative roof area.

Below is an update to the mixed-use cost comparison originally published in the Costing Steelwork mixed-use focus feature in Building magazine in April 2018.

Holiday Inn tower, MediaCityUK, Manchester

The gross internal floor area of the building is 18,625m2. The 67m-high building is rectilinear with approximate dimensions of 74m x 15.3m. 

Three frame options were considered to establish the optimum solution for the building:

The full building cost plans for each option have been updated to provide costs at Q1 2022. The steel frame with composite deck continues to provide the optimum build value, with the overall building cost at £3,038/m2.

Options 1 and 2 are arguably more typical for this building type. The base case structure is an unusual solution due to a decision to change the residential accommodation to office floors at a very late stage – time constraints precluded redesign of the tower block, hence the original Slimdek design was constructed.

This Costing Steelwork article produced by Patrick McNamara (director) and Michael Hubbard (associate) of Aecom is available at www.steelconstruction.info.

The data and rates contained in this article have been produced for comparative purposes only and should not be used or relied upon for any other purpose without further discussion with Aecom. Aecom does not owe a duty of care to the reader or accept responsibility for any reliance on the article contents

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