Uncertainty set to drive global construction cost increases in 2025
Global construction costs are set to rise by up to 7% in 2025.
The boom in key sectors, such as digital infrastructure and renewable energy, offers obvious opportunities for growth. But the industry still faces geo-political and economic uncertainty, which will continue to disrupt supply chains and increase prices.
The findings are captured in ‘Building a resilient future: Adapting to uncertainty in 2025’ a new report published by Currie & Brown, a world-leading provider of cost management, project management and advisory services.
In the UK, construction industry growth of 2.7% is forecast in 2025*, supported by stabilising inflation, reduced interest rates and government commitments to invest in infrastructure and housing. However, factors including skilled labour shortages and possible trade tariffs are likely to drive construction costs up by 3 – 4%. There is also uncertainty around the impact of increased National Insurance contributions for employers, which could undermine business confidence and imperil economic progress.
According to the report, costs will rise across all global regions and most markets, driven by a shared set of 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.
The 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 is likely to push up the cost of labour – especially in high-growth sectors, such as renewable energy, digital technology infrastructure, and housing.
Alan Manuel, group chief executive officer, 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.”
The report proposes ways in which organisations can act to both better prepare for inevitable unknown headwinds and to exploit future opportunities:
1. Be adaptable
The industry must adapt and flex, by adopting a more open-minded and collaborative approach. For example, creating more diverse supplier networks and contracts will spread risks and mitigate the impact of exposure to unforeseen economic turbulence.
2. Address skills shortages
Taking specific action on several fronts will help alleviate the ongoing shortage in skilled labour. Carefully considering the availability of labour in the planning stages of a new project and investing in training from the outset will help ensure adequate provision for the duration of the project. And tapping into workers with transferable skills from different sectors, such as technology and healthcare, will broaden the pool of potential talent.
3. Double-down on data
The industry should make use of more granular data to stress-test new projects and radically improve the accuracy of cost analysis. It will also enable project owners and their construction partners to rapidly pivot and protect critical cost, time, and environmental outcomes in the face of unexpected scenarios.
Nick Gray, chief operating officer, UK and Europe, Currie & Brown, comments: “Economic uncertainty, the digital revolution and acute skilled labour shortages are driving up construction costs in the UK and globally. In the UK alone, it is estimated that over 250,000 extra workers will be needed to meet UK construction output by 2028**. To meet this challenge and others head-on, the industry must remain agile and seek opportunities to innovate. This will be key to driving sector growth and delivering more sustainable built environments for all.”
