Profit-hungry contractors are contributing to inflation

Property developer British Land expects construction cost inflation to run at 6% a year over the next few years. British Land said that construction costs have increased across the market partly because of rising input costs and partly because contractors were looking to increase their profit margins after years of famine.

British Land has 1.5 million square feet of property under construction at the moment, nearly half of which is at 5 Broadgate in London. Total current value of projects under construction is £909m and they are expected to cost £358m to complete.

For these projects, 87% of costs are fixed, the company said, so inflation will have limited impact on them.

British Land today unveiled pre-tax profits of £1.8bn for the year to 31st March 2015, up from £1.1bn for the previous year. Excluding property revaluations and gains or losses on disposals, underlying pre-tax profit was up 5.4% to £313m.

In its results statement, Btish Land said: “Construction costs increased across the market, most notably in London reflecting rising input costs and contractors’ increasing margins after a prolonged period of margin pressure.  We expect cost inflation of around 6% per annum.”

It added that the impact of this cost inflation had been largely offset by improving property values.