Construction Market Faces Rapid Price Growth in 2016

A new year approaches, and along with it comes new opportunities for buyers to procure the products and services their business requires more strategically. Businesses must be vigilant of changing market conditions to achieve cost savings, accommodate for cost increases and plan efficiently. This rings true particularly for buyers of legal, transportation and construction services, which are displaying rapid price growth. IBISWorld has identified several markets within these sectors in which prices are forecast to grow more rapidly than the national inflation rate in 2016. To soften the blow of price increases, procurement professionals can leverage their knowledge of key market characteristics to minimize costs and win strategic deals.

Construction services

The construction sector is also poised for strong growth in 2016. With an improving economic outlook and more available cash on hand, businesses will continue their expansion plans, thereby bolstering overall construction activity. Swelling demand for new healthcare and educational facilities, offices, hotels and retail stores is projected to strengthen construction activity in the commercial building market. As a result of this surge in demand, prices for a number of construction services are projected to increase rapidly. For example, the price of plastering and drywall services, which are widely used in commercial and construction projects, is forecast to jump 7.7 percent in 2016. Similarly, prices for painting services and landscape architecture and design services are anticipated to increase 5.9 percent and 3.4 percent, respectively, next year. In addition to skyrocketing demand, higher prices for raw inputs such as gypsum building materials, coatings and paint will further propel price growth for construction services as suppliers seek to compensate for heightened purchase costs.

While buyers cannot completely avoid future price hikes, they can reevaluate their purchasing strategies to maximize cost savings. In fragmented markets with high competition, buyers can pit suppliers against one another by sourcing multiple bids, including blind bids, to elicit more competitive prices. In order to lock in lower prices, buyers should consider purchasing these services sooner rather than later or entering into contract agreements.

Purchasing in the new year

With the new year right around the corner, businesses should resolve to be more knowledgeable about the markets in which they will be purchasing and more strategic with their procurement techniques to effectively brace for price hikes. Using strategies like purchasing services sooner rather than later or engaging in supply agreements to lock in favorable rates can shield buyers from the brunt of the damage. Armed with key pricing insight, buyers can gain the upper hand in negotiations.

For more information, visit IBISWorld.