Cost Escalation and Opportunities in Global Construction Sector

Factors Contributing to Rising Construction Costs

The global construction industry faces a challenging year ahead in 2025, with costs projected to rise by up to 7%. The increase is largely driven by economic volatility, geopolitical tensions, and sector-specific disruptions. However, amid these challenges, opportunities for growth exist, particularly in digital infrastructure and renewable energy. The projected rise in construction costs across all regions and most markets, is attributed to several interlinked factors:

Economic uncertainty: Despite a levelling off of inflation and the stabilisation of interest rates, growing protectionism, political volatility, and conflicts in various parts of the world make for an unsettled and unpredictable outlook. These factors will continue to put pressure on the cost and supply of materials and labour.

Digital technology revolution: The rapid and inexorable evolution of digital technology in general, and AI in particular, will continue to transform industries worldwide. It will create opportunities for growth. But that growth will also generate intense competition for scarce and specialised materials (notably for projects in the technology sector), adding significantly to global construction costs.

Labour shortages: The chronic lack of skilled workers across the construction industry globally, is set to intensify in 2025. This is likely to push up the cost of labour, especially in high-growth sectors, such as renewable energy, digital infrastructure, and housing.

Alan Manuel, Group CEO, Currie & Brown, comments: “Year-on-year cost inflation has become a fact of life for the global construction industry. Clearly, this year will be no different with moderate rises on the horizon. But the real challenge is uncertainty, which will be exacerbated by continuing macro-economic and geopolitical volatility. So, resilience will be the key to survival and success in 2025 and beyond.”

He adds, “While labor shortages remain a significant challenge, key opportunities are emerging, particularly in sectors like digital infrastructure and renewable energy. By embracing technology, data-driven strategies, and fostering collaboration, companies can adapt to this shifting landscape and build resilience.”

Regional Insights and Growth Projections

The construction sector's outlook varies across different regions, with varying challenges and opportunities. Construction growth in the Asia Pacific region faces challenges from labour shortages and economic factors. While Australia, India, and Thailand see demand in key sectors, other markets like China and Hong Kong experience slower growth. Rising costs, particularly in skilled labour, remain a significant concern across the region, while government policies and external factors like geopolitical tensions shape the outlook.

India: Construction activity in India is expected to increase, alongside an economic growth rate of 6.7%. Government policies aimed at promoting investment will boost key sectors such as semiconductor and chip manufacturing, as well as industrial infrastructure development. Rising per capita income and ongoing migration to urban centres will continue to fuel demand for residential construction. However, India is projected to see a 5-7% rise in construction costs, driven by skilled labour shortages and potential supply chain disruptions. There is also some uncertainty regarding the impact of changing government policies and taxation on costs. Skilled labour shortages and supply chain disruptions will likely be the primary challenges, pushing up costs further.

Australia: The construction sector in Australia faces slow growth due to labour shortages and global supply chain issues. Costs are expected to rise by 5-6%, particularly in high-demand sectors like residential housing, healthcare, and data centres.

China: China's construction market is slowing, with costs remaining steady. However, demand for data centres and semiconductor facilities is driving sector-specific cost escalations of 20%.

Hong Kong: Anticipated cost increases in Hong Kong are slight, ranging from 0-1%. Public housing projects will continue due to government investment, although challenges around skilled labour shortages will persist.

Japan: Japan's construction market is stabilising, with modest cost decreases of -0.5%. However, skilled labour shortages and a weak Yen will keep prices high.

Singapore: Construction costs in Singapore are expected to rise by up to 3%, driven by labour shortages and project delays.

Malaysia: Construction costs are projected to rise by 3-5%, primarily due to skilled labour shortages and high material costs.

UK: The UK construction industry is set to see growth of 2.7% in 2025, following a subdued end to 2024. Government investment in commercial and residential development, infrastructure, and data centres will boost the sector. However, cost increases of 3-4% are expected across most projects due to inflation, increased National Insurance contributions, and skilled labour shortages. Financial stability remains a risk, underscored by the recent collapse of several established firms.

Europe: The European construction outlook is mixed. Growth is expected in high-tech, logistics, and renewables, but challenges remain due to labour shortages, funding constraints, and political uncertainty. Skilled labour shortages, particularly in high-tech sectors, and the ongoing conflict in Ukraine add to the instability. Overall, cost escalations of 2-3% are expected across the continent.

• France: Cost increases of 2-3% are expected, with €15 billion in investments targeting renewable energy, decarbonisation, high-tech, pharma, and tourism.
• Germany: A tough year is forecast, with a 2% rise in construction costs, driven by recession and political uncertainty.
• Italy: Growth is expected, particularly in logistics and infrastructure, with costs rising by 2%.
• Spain: Costs are expected to rise by 3%, driven by high-tech and hospitality projects.

Middle East: The region is poised for significant growth, driven by government-led investments in infrastructure, hospitality, and sustainability projects. However, challenges remain.

• Saudi Arabia: Economic growth of 4.4% is anticipated, spurred by its bid to host the 2034 FIFA World Cup and Expo 2030. Ongoing construction of mega-projects like NEOM and The Line will continue at a fast pace, but cost escalations of 5-7% are expected due to a scarcity of skilled labour and specialised materials.
• UAE: Economic growth of 6.2% is expected, benefitting from initiatives like the Sheikh Zayed Housing Programme and the 2050 Energy Strategy, with cost increases of 2-5%.

USA: With the potential return of Trump’s administration, changes in trade and economic policies could impact construction costs, expected to rise by 4% in 2025. The tech sector, especially data centers and semiconductor manufacturing, will drive growth. While inflation is low and material costs stable, skilled labour shortages may increase costs. Policies like the CHIPS Act have supported tech manufacturing, but future changes could alter funding and opportunities.

Latin America: In Latin America, construction growth is forecast at 3%, with infrastructure projects, renewable energy, and urban resilience programmes driving investment. Costs will increase by 3-4% in Mexico, 3% in Colombia, and 2% in Peru, primarily due to supply chain disruptions, skilled labour shortages, and inflation.

Insights for Effective Project Planning

The demand for data centers is a key area driving growth in 2025, but labor shortages and competition for specialized skills are leading to delays and cost increases.

According to Sean Cole, Senior Director at Currie & Brown (USA), “The demand for data centers is growing rapidly, particularly in regions like the USA, India, and Europe. However, delays and rising costs are prevalent due to labor shortages in high-tech construction. To mitigate these challenges, early planning and collaboration are essential. High-tech clients should plan thoroughly by understanding local labor markets and supply chains, especially when entering new markets. Building strong relationships with contractors by offering fair contracts, fostering collaboration, and ensuring fair risk allocation is essential in attracting and retaining top talent. For projects in new markets, combining global expertise with local insight is crucial for navigating different business practices, regulations, and supply chains. Finally, a hybrid approach—pairing global teams with local partners—can help build a skilled local labor pool while providing valuable experience and oversight, ensuring the success of high-tech projects.”

Rachel Personius, Data and Sustainability Expert at Currie & Brown, emphasizes the importance of data in mitigating cost overruns and improving project outcomes: “Accurate data is essential for successful project management. At Currie & Brown, we track and analyze project costs through AI and predictive analytics, allowing us to anticipate real costs and refine budgets accordingly. By leveraging historical data, we can create more realistic and dynamic budgets and identify potential savings without compromising quality or timelines. Data-driven approaches help us create more cost-effective and sustainable projects. We have integrated embodied carbon data alongside construction costs to assess the cost, carbon, and schedule impacts of sustainable materials, like green concrete. This allows us to identify cost-effective solutions to meet environmental goals and unlock innovative possibilities such as off-site construction and renewable energy integration.”

Citing an example, she said, “For a large data center project in North America, our detailed data analytics and benchmarking services identified a 30% cost reduction opportunity. By redesigning the data centers based on our insights and independently pricing each design option, the client achieved significant savings without compromising quality or time.”

Building a Better Future in 2025

While significant cost escalations may not be imminent in 2025, the outlook remains uncertain, with pervasive instability becoming the new norm globally. The industry must move away from the traditional "business as usual" approach and adopt proactive risk analysis and resilience-building strategies to absorb both predicted and unforeseen shocks. Skilled labor shortages, a challenge across all regions, will drive moderate cost increases and add pressure to projects.

Meanwhile, the tech revolution continues to reshape industries, especially in high-demand sectors like data centers and semiconductor manufacturing, which will remain key growth drivers. Sustainability, decarbonization, and the transition to renewable energy will also accelerate, presenting substantial opportunities for those prepared to capitalize on them.

To better prepare for inevitable challenges and seize future opportunities, the report suggests the following actions:

Be adaptable: Adopt an open-minded and collaborative approach, such as creating more diverse supplier networks and contracts to mitigate risks associated with unforeseen economic turbulence.

Address skills shortages: Actively plan for labor availability, invest in training from the outset, and consider workers with transferable skills from other sectors, such as technology and healthcare.

Double-down on data: Leverage granular data to stress-test projects and improve cost analysis accuracy, enabling project owners and construction partners to quickly pivot and protect critical cost, time, and environmental outcomes in the face of unexpected scenarios.

Says Alan Manuel, “There is clear potential for the construction industry in 2025. To make the most of opportunities, all parties need to be pragmatic and collaborative. Careful planning will be key to building the resilience required to absorb future shocks.”