The coming year presents a complex landscape for the construction industry. Cost, risk and growth will be impacted by geopolitical turmoil, inflation and increased regulatory complexity. Competition for resources, particularly labor, means proactive and early strategic planning is needed. In light of these challenges, we expect costs to increase across most regions, although the high inflation seen in 2022 has largely stabilized. Navigating these complexities will take adaptability, resilience, and a focus on risk mitigation strategies.

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Labor Shortages Fuel Cost Escalations

The construction industry in China faced significant challenges in 2023 with major developer liquidity issues and skittish investors. Stella Teoh, director based in Shanghai, predicts the development market will continue to face headwinds in 2024 with pockets of growth in infrastructure, electric vehicles and high-tech construction. However, despite the overall slowdown in the market, ongoing shortages of skilled labor will lead to a construction cost escalation of 2% in China next year.

In Hong Kong, increased government investment in public housing will drive construction activity. Despite severe labor shortages and the need to import workers, we predict a moderate 3% increase in construction costs in 2024.

‘Japan continues to struggle with delays on imported materials and long lead times on major equipment’
-Eng Tan, director, Currie & Brown

In Singapore, Taiwan and Thailand, tourism will fuel the construction sector with increased hospitality, retail, food and beverage, and aviation construction activity. Data center construction will also grow in Taiwan and Thailand next year with Thailand’s data center market projected to post triple-digit growth over the next two years. Currie & Brown predicts that material and equipment costs will remain stable, while cost escalation will be driven by competition for skilled labor and capable contractors. Director Robert Cooper notes that a forthcoming increase in Thailand’s minimum wage and uncertainty around reactions to the newly elected prime minister will be risks for the industry to monitor.

Large projects are adding pressure on competition for resources in the Japanese construction sector, and have resulted in cost escalations of 30-40% over the past two years. These projects, along with increasing high-tech construction, will keep the market busy in 2024 despite cost increases and a weak Yen. While most other countries report largely normalized supply chains, Eng Tan, a director in Tokyo, shares that Japan continues to struggle with delays on imported materials and long lead times on major equipment.

New labor regulations limiting overtime, put into place in April, may add fuel to the fire, particularly against the backdrop of Japan’s aging construction workforce. Tan predicts projects will take longer, and a cost escalation of 10-20% in the coming year. Clients with foreign currency could benefit from investing in Japan due to the weak JPY forecast.

Construction activity in India is expected to grow with increased government investment in infrastructure, urbanization and real estate, along with data center and semiconductor growth. Shonith Shetty, associate in Mumbai, notes that investors are hesitant ahead of countrywide 2024 elections. According to Shetty, costly compliance with environmental standards, evolving regulations and a shortage of skilled labor will drive a 5-7% construction cost escalation in next year.

In Australia, high interest rates are expected to lead to construction activity remaining steady or softening. Despite a potential slowdown in activity, Rob Watkins, director in Sydney, is predicting a 6% cost escalation in 2024 due to a severe shortage of mechanical, electrical, and plumbing labor.


Ongoing Growth in Middle East

A budget surplus due to oil prices will provide opportunities in the UAE for social and infrastructure development and improvements. Currie & Brown expects activity to grow by 3.9% per year from 2024 through 2027, fueled by the country’s population boom. With UAE’s ambitious goals to double tourists over the next decade, activity in the hospitality sector is expected to be strong. Doug McGillivray, managing director in Abu Dhabi, is expecting construction costs to increase by 2-3%.

Saudi Arabia’s Vision 2030 and mega project pipeline continues to buoy its construction industry. Dan King, director in Riyadh, expects construction activity to ramp up in 2024 as political pressure to show progress towards Vision 2030 increases. Renewable energy, data center, infrastructure, and hospitality construction is projected to grow amid fierce competition to attract and retain competent labor, consultants and contractors. King is projecting a 3-5% escalation per year for the next two years but notes that the impact of the 2034 FIFA World Cup on government investment priorities remains unclear.


Navigating Uncertainty for Steadier Ride

‘The [UK] economy is likely to remain flat at best [in 2024]’
-Richard Hill, director, Currie & Brown

Uncertainty around the timing and outcome of next year’s general election, high interest rates, and inflation in the U.K. are impacting construction investment decisions. This means the economy is likely to remain flat at best, according to Richard Hill, director in London. The construction industry will be driven by public spending commitments including transportation infrastructure, health, and education. Hill expects residential and private commercial construction to remain subdued until interest rates start to fall.

The progression of the net zero carbon agenda will see a shift from new build to refurbishment and repurposing developments. Along with labor capacity, enforcement of new legislation regarding carbon reduction and building safety will form challenges for the U.K. construction industry in 2024. Overall Hill predicts a 3.4% increase in construction costs in the next year.

Construction in Europe is expected to remain steady or decline slightly next year. Tight monetary policies aimed at reducing inflation have resulted in decreased investment. The industry will be supported by infrastructure, data center and hospitality construction, with a focus on sustainable development. Strong labor markets combined with low unemployment rates and rising wages are creating a challenging environment, putting pressure on labor costs. However, declining energy prices and stabilized material supply chains should lead to a European construction cost escalation of 4-6% in 2024, down from nearly 9% in 2023.


Infrastructure Driving Growth

Infrastructure is expected to drive growth in Mexico, Colombia and Peru. Shortages of steel and copper, combined with increasing demand for a small pool of skilled labor, will lead to cost escalations of over 9% in Peru, and to a lesser degree, 2% in Mexico and Colombia, according to Carlos Garza, director in Mexico City. It will be important to monitor the impact of the Mexican mid-year election on current and planned government investments.


Keys to Successful Projects

Proper planning and thorough understanding of the market are crucial to project success in 2024. Solving resource and labor shortages will take long-term effort. Proactive, early and comprehensive assessment of the costs to secure labor, materials and equipment at the start of a project will ensure better investment decisions, avoid inaccurate or unrealistic budgets, and ultimately save time and money. Sustainability and embodied carbon reduction are global priorities: partnering with trusted experts who seamlessly integrate environmental considerations into project timelines and budgets is crucial for success.