Mace’s tender cost update for Q2 forecasts increases of 4.0% in both 2016 and 2017.
The report forecasts that the continuing strength of demand from clients and occupiers means that tender prices are expected to increase at well above the level of general inflation.
The forecast for London is retained with inflation of 5.5% expected in 2015 followed by 4% in 2016 and 3.5% in 2017. The expectation is for demand to remain robust in the capital but price increases are forecast to moderate after nearly two years of strong growth which has increased construction costs significantly.
With low inflation for input costs, it is increasing margins that continue to be the main driver behind any tender price increases, Mace says, and the demand from a growing economy remains robust enough to generate the current price increases.
Chris Goldthorpe, managing director of Mace Cost Consultancy, said: “The growth of the construction industry in London is well established and the market is stabilising, although complex or bespoke projects are still attracting a premium. We are now seeing a similar pattern developing in other regions where supply chain constraints and risk aversion has led to reduced competition, particularly for major projects, where the choice of procurement method is critical to achieving value for the client.”
To read full report click here.