Tender price inflation forecast
Sector specific tender price inflation is the new norm
Even with the German economy situated squarely within a recession, construction building prices have seen slight growth over the past year, rising between 3.0 – 3.5 percent. Although construction prices are continuing to slightly rise overall, this varies depending upon the sector. Additionally, we are seeing some forms of regression in preliminaries, risk and profit. The German contractor’s appetite for risk is also changing, with less contracts available, contractors are more willing to take on risks that they avoided in the past. This all leads to the expectation of stagnating overall prices, although this varies from sector to sector.
A look at the number of building construction permits, for example, shows a sharp decline in the number of permits issued year on year since 2022.
Figure 9:
Building permits issued in Germany by year and per month
Source: Destatis
Although corporate occupier and new logistic projects have stalled and seen a strong regression, there are still some growth sectors, especially in the data centre and clean energy infrastructure areas. Data centre projects are only being held back by regulatory hurdles and the lack of adequate power infrastructure. The EU’s ongoing commitment to having an alternative to fossil fuels is also seen by the large clean energy infrastructure projects that are currently in construction, design, with further projects also in the pipeline.
Construction prices finally achieved stabilisation in 2024, after years of imbalance. 2024 saw a rise of prices between approximately 3.0 – 3.5 percent consistently over all four quarters.
Source: Destatis
Source: Destatis
Material prices have stabilised for the most part with the biggest deviation still in oil, which rose sharply in Q2 2024, only to drop well below its Q1 2024 starting point by the end of Q4. 2025 may bring back an element of de-stabilization, as tariffs likely will cause material prices to escalate once again.
Contractors remain optimistic according to our Q1 2025 market survey, as they still expect a 3.0 - 4.0 percent rise in prices over 2025 and 2026. Our expectation is a much more stunted growth, on the verge of stagnation, depending upon how the international political situation and agreements play out over the next year.
Source: Destatis
Source: Destatis
While further stagnation and deflation is a very real possibility for 2025, clients and contractors need to be proactive in tackling cost pressures on a project-by-project basis, tailoring their approach to factors such as region, sector, project size, procurement route and market.
What does this mean for our forecasts?
Our central scenario has remained constant from our previous market intelligence report, with a slight revision to the inflation that occurred in 2024. Our central scenario estimates that construction tender price escalation will increase by approximately 2.0 percent in 2025 on average. We are forecasting the construction escalation to slightly rebound by approximately 3.0 percent in 2026 and 2027, which we are expecting to continue to hold steady.
Figure 15:
Tender price inflation in Germany: forecasted annual percentage changes
Source: Turner & Townsend data forecast
Our forecasts are representative for Germany as a whole and escalation may vary by project size, value, procurement route and region. Projects need to be assessed on an individual basis and may not always align to our central scenarios. For further assistance on cost assurance and inflation analysis in your area, please contact Turner & Townsend.
Although our central construction forecast does not suggest that construction deflation will occur, it is a very real prospect and prices could potentially fall depending the geopolitical landscape - impacting on consumer confidence and investment. On the other hand, the massive economic policy stimuli (investments of 1 trillion in defense and infrastructure) could have a revitalizing effect on the economy. Germany’s economic performance and expectations is largely uncertain, and this uncertainty will play a heavy part in pricing moving forwards.
Uncertain markets require strong adaptable strategies
Germany’s construction market is navigating uncertainty, with this not expected to change in the short term. Construction will continue as it always has, with strong, adaptable strategies being the cornerstone of successful projects and programmes.
Cost planning, forecasting and confidence play a large, challenging role in projects moving forward, especially in times of evermoving landscapes. Higher cost certainty leads to more investment confidence, which is the foundation moving forwards.
Understanding the market, and forming proper partnerships, alleviates some of these challenges and spread potential risks over multiple stakeholders. Contractors are much more willing to shoulder this risk than in the past, as they branch further into new sectors due to the limited contracts available.
Uncertain market conditions require agile management tactics in the development of projects and programmes. Industry professionals should react to changing market situations and leverage opportunities where available to them. Employing project, digital and management strategies, setting up robust control mechanisms throughout the project lifecycle, and proactively managing risk and change will set up projects for success.
