Construction Costs Rise by 11% Due to High Labor & Material Cost: Colliers
In the past year, construction costs have surged by up to 11%, driven largely by higher labor expenses and moderate price hikes in essential materials such as sand, brick, glass, and wood. Despite this increase, the impact of rising costs in primary materials like cement, steel, copper, and aluminum has been minimal. Cement prices saw a notable decline of 15%, while steel prices dipped slightly by 1%. This combination of labor cost hikes and moderate material price changes has contributed to the overall rise in construction costs.
“While rise in prices of key construction materials was relatively modest over the last year, labour costs have been driving the overall cost of construction upward. With labour accounting for more than one-fourth of overall construction cost, a 25% annual rise in labour costs has stretched construction budgets and impacted operational expenses. Moreover, the need for skilled labour and the associated costs for training, safety and regulatory compliance further adds to spiraling labour costs.” said Badal Yagnik, Chief Executive Officer, Colliers India.
As of October 2024, cost of construction in the residential segment saw an estimated 11% increase YoY. Amongst various real estate segments, construction cost escalation has been relatively sharper in the residential segment. Interestingly, increasing built quality consciousness and the growing demand for amenity rich gated communities have persuaded residential developers to upscale their real estate offerings in general and thus led to higher cost of construction cost in the residential segment.
“Despite rising construction cost across real estate segments, the commercial and industrial & warehousing segments have witnessed robust new supply during 2024. For instance, the Indian office market saw 37 million square feet of new completions in the first nine months of 2024, while the industrial & warehousing segment saw about 22 million square feet of new supply. Amidst healthy demand especially for Grade A developments, project completions are expected to be largely on schedule across major cities. Real estate developers, meanwhile, are likely to step-up technology and sustainability adoption across asset classes.” says Vimal Nadar, Senior Director and Head of Research, Colliers India.
To navigate the steady rise in overall construction cost and associated challenges, developers are optimizing cost by reassessing budgets. They are also looking at improving supply chain management by diversifying suppliers and opting for localized sourcing of key construction materials. Additionally, real estate developers are increasingly making investments in training and automation to address challenges related to volatilities in the availability of skilled manpower, which in turn can potentially facilitate better project scheduling. Going ahead, a greater adoption of circular economy will not only optimize construction cost but also improve efficiency and support sustainability.
