The latest tender price forecast from Mace Cost Consultancy suggests strong client demand will keep tender prices increasing ahead of inflation.
Rising margins are the main driver behind tender price increases, according to Mace’s Q1 Tender Cost Update.
The consultant has maintained its previous tender cost inflation forecast for 2015 at 4.5 per cent nationally, while increases of 4 per cent are expected in 2016 and 2017.
London forecasts have also been retained with inflation expected to stand at 5.5 per cent in 2015, followed by 4 per cent in 2016 and 3.5 per cent in 2017.
In its previous tender cost update, Mace revised its forecast to 4.5 per cent, up from 3.5 per cent.
The research forecasts that demand will remain robust in the capital, but price increases are expected to moderate over the course of 2015 following two years of strong growth.
Increasing capacity will also remain a challenge for the industry over the next three years, with slack in the labour market “reducing month-on-month”, according to the research.
Mace expects the result of May’s general election could have a “short-term effect” on financial markets, but overall the economy is “likely to be maintained” up to 2017.
Public sector output is expected to continue a slow decline, however, though Mace expects spending will be maintained for health and education projects.
Commenting on the research, Mace Cost Consultancy MD Chris Goldthorpe 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.”