Construction company Mace has increased its forecast for tender cost inflation in London from 3.5% to 4.5% for both 2014 and 2015, the Construction Index reports.
Competition is falling and so margins are on the rise, said Mace, as its cost consultancy division reported that contractors are able to cherry-pick their jobs in the capital city. The firm also noted that the London office market has become increasingly active amid an increase in private commercial work.
However, it's a different picture elsewhere in the UK, with enough capacity to meet demand and keep competition steady - keeping price increases down. And again, within the private commercial sector, supply is still sufficient to meet general demand; this sector has still not recovered across all UK regions.
As a result, average inflation in tender prices has remained unchanged for the UK, at 2% for 2014, and is expected to rise to 2.5% in 2015 and 3% within two years, Mace forecast. By that time, the general economic recovery is expected to have increased demand for construction across the UK.
Mace also found that capital investment has increased consistently over recent quarters, in what it has named 'next stage of the UK economic recovery.' Business investment, one of the main components of this, grew to £33.4 billion in the last quarter (up by 5%) after five quarters of consecutive growth. It is now at its highest since 2008.
Mace Cost Consultancy managing director Chris Goldthorpe said that the London market was unwilling to take on risk as a result of contractors being unable to meet rising demand.
He added: "It is now a regular occurrence for contractors to turn down tender opportunities, particularly if they involve single stage tendering, incomplete design information or significant construction risks."