Construction cost pressures around the world have eased, new data shows.

But some pressures remain as activity levels remain reasonably strong.

Published by project and cost management firm Turner & Townsend, the 2023 edition of the International Construction Market Survey report provides a snapshot of conditions across 89 construction markets around the world.

The report is based on cost data from across the 89 markets along with input from Turner & Townsend’s own team of economists and local specialists.

According to the report, the overall rate of construction price escalation is expected to moderate from a breakneck rate 9.5 percent in 2022 to 5.8 percent in 2023 and 4.3 percent in 2024.

In terms of regions, the most subdued pace of escalation is expected to be seen in the United Kingdom, Australia, New Zealand and Asia.

In 2023, costs in these markets are expected to increase by 3.1 percent, 3.6 percent, 4.1 percent and 4.7 percent respectively.

On the flip side, cost escalation which exceeds 10 percent is expected in Harare, Mexico City and Bogota.

Meanwhile, moderate levels of cost escalation in 2024 will be driven by emerging markets.

In Jakarta, for example, cost escalation of 6.0 percent is expected as resources are depleted to create a new Indonesian capital.

Looking particularly at North America, this is expected to see a lower level of cost escalation (4.1 percent in 2024) compared with the overall average but is likely to see the highest level of cost escalation within advanced regions.

In particular, cost escalation is expected to remain at very high levels in Ottawa (7.5 percent in 2024) as well as in secondary cities across the US as these markets catch up with established market hotspots such as New York and San Francisco.

The latest data comes as construction markets across many advanced economies have cooled following the post-pandemic boom on account of an easing in demand and tighter financial conditions.

In the 2023 edition of the survey, only 23 of the 89 markets surveyed are ranked as either ‘hot’ or ‘overheating’.

This is down from 35 in the 2022 edition of the survey.

This – along with the easing of COVID restrictions and major bottlenecks around ports – has seen pressures ease in terms of material costs.

Steel costs, for instance, have fallen notably from conflict and pandemic highs across China, Europe and the US.

However, with almost three quarters of all markets (74.2 percent) still experiencing skilled worker shortages, pressure remains on the cost and availability of labour.

According to the report, skilled worker shortages are particularly evident in developed economies.

Across the UK, Australia/New Zealand, North America and Continental Europe, labour shortages exist in 100 percent, 100 percent, 90.5 percent and 80 percent of markets respectively.

In Africa and South America, by contrast, labour surpluses exist in 66.7 percent and 40 percent of markets respectively.

Despite the easing in cost pressures overall, Neil Bullen, Managing Director of Global Real Estate at Turner & Townsend, said pressures on the industry remain.

Bullen said that ongoing pressure in established markets means that newer emerging locations are increasingly appealing for real-estate investors.

He said the importance of effective construction strategies should not be underestimated.

“The global real estate market and the construction industry which supports it is being weighed down by inflationary headwinds and worldwide skills shortages,” Bullen said

“Even as interest rate rises start to bring inflation down, we are seeing the knock-on impact of higher borrowing costs for private investment in construction.”

“While established markets are highly pressured, newer emerging locations are increasingly appealing for investors – whether that is secondary cities within the US, or growing economies in India and southeast Asia.

“In either case, keeping close to supply chains is critical to understand capacity, benchmark costs and de-risk investment. Real estate clients need to look holistically at the construction ecosystem to identify areas of innovation in build processes and ongoing operations that improve performance.”

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