The volume of development projects in Mainland China has rapidly decreased while real estate development investment and new commercial housing sales experienced a downward trend. Alongside these challenges, the prices of building materials showed varying degrees of decline while labour costs remained relatively stable since the latter part of 2023.

Hong Kong’s economy has exhibited steady signs of recovery, coupled with notable growth in the construction industry, thanks to the government’s initiatives for new land production and the implementation of mega development projects. The Northern Metropolis and associated infrastructure initiatives are expected to further stimulate the construction industry, particularly in the public sector. With the tender price index at its peak, it is expected to remain stable in the upcoming quarters as contractors bid for projects at a lower margin compared with previous quarters.

The construction sector in Macau has experienced remarkable growth, largely fuelled by investments from gaming enterprises. The Macau government is increasing its investments in public infrastructure, such as a large-scale public housing project and the expansion of the Macau Light Rapid Transit East Line. As a result, tender prices are expected to rise gradually in the coming quarters.

The construction industries in Southeast Asia are poised for growth in 2024, ranging from 5% to 10% despite various setbacks.

Tender prices in Jakarta, Kuala Lumpur, Phnom Penh and Singapore are expected to remain high, in particular due to elevated material prices, labour shortage and high interest rates. In addition to the above factors, contractor solvency emerged as a major influence for cost escalations in Ho Chi Minh City due to domestic political and regulatory uncertainties.

Nonetheless, there remains a strong pipeline of industrial and data centre construction projects across the Southeast Asia markets.

Infrastructure, manufacturing and data centres are major growth opportunities in the region, with continued foreign investment stimulating activity in these sectors. Significant, sustained growth in the mining industry, specifically in the DRC, has resulted in a rise in subsectors such as mining accommodation, educational facilities and data centres, which service mining operations. The residential sector poses a huge opportunity as a result of population and income growth. Demand currently outweighs supply with some countries facing significant housing shortfalls.

The key drivers of construction tender price inflation in Africa include fluctuation in fuel prices, influenced by the global oil market, and rising labour costs, driven by increased demand for skilled workers. Another factor is the rise in the cost of raw materials, which can often be difficult to obtain due to shipping, logistics and supply chain bottlenecks.

In South Africa, a range of economic and political factors, together with a recent increase in the minimum wage, is having a negative effect on tender prices, which seem to be rising constantly as contractors attempt to mitigate risks in their prices. There is an expectation that construction activity will increase from Q3 of 2024 after the national elections but only once investor confidence can be confirmed. There is hope that inflation will start decreasing in the coming months which will have a positive impact on interest rates which should become evident in tender prices.

Construction market activity levels across European markets are notable for the particularly strong current performance of Dublin, where all sectors other than offices, are operating at high levels. Overall, this is unmatched anywhere in mainland Europe, where other locations display a range of levels of activity.

This is reflective of tender price movements for 2022 and 2023, which depicted a significant boom in the market, with that work now being on-site. Although Berlin, Brussels and Warsaw showed similar tender price growth, their rather less buoyant activity levels suggest a more stable period upcoming, as can be seen in the moderate projections for tender price uplifts.

For the UK, overall average sector performance is slightly ahead of the European average, although lagging somewhat in the industrial, retail and data centre sectors. The UK’s average levels of tender price growth are stabilising slightly below those of Europe now, with projected figures showing more relationship with input cost escalation, as economics and workload replenishment necessity drives tender pricing.

The resolution of ongoing geopolitical issues in Ukraine, Gaza and the Red Sea would assist in resolving ongoing Europe-wide mechanical and electrical procurement and lead-in concerns. Allied to the continued squeeze on the general availability of skilled trades workers, and standing alongside burgeoning green initiatives, initiatives and direction from governments may be the key to how construction is delivered, and how competing national and regional imperatives balance out.

The 2023 Q4 RICS Construction Monitor Report ranked Kingdom of Saudi Arabia (KSA) highest in the world for construction activity and therefore it dominates the Middle East region in both scale and magnitude of projects.

Availability of competent contractors to take on the complexity of work remains a challenge and continues to create a high inflationary environment. This should ease over time as more resources become available. Higher fuel costs and an end to diesel subsidies could see unit prices increase by 3-10% over the coming year. Elsewhere, inflation remains relatively stable.

The loss of resources to KSA from neighbouring countries, due to the significant increases in salary packages, threatens a noticeable reduction in the talent pool available to deliver projects. This puts pressure on companies having to increase local salaries which is not necessarily reflected in associated fee increases.

While activity across the UAE is relatively strong with growth expected to continue, Qatar is continuing to show minimal growth after the World Cup. Qatar’s construction sector is quiet, largely relying on completion of existing projects with little in the way of new major schemes being announced.

The region’s airport sector is set for significant growth. Dubai currently has the second busiest airport in the world by passenger numbers and has recently announced the go-ahead of a new airport located in Al Maktoum, valued at circa $35 billion. KSA, as part of its 2030 vision, is planning a new six-runway airport in Riyadh.

The industry outlook is optimistic, with strong growth expected in the construction of manufacturing plants, data centres, schools, infrastructure and power facilities. In the residential sector, however, higher interest rates and stricter lending standards are pushing up construction costs, while rents in many markets are stagnating or decreasing.

This combination of factors suggests that spending on multi-family construction will decline in 2024. Nonetheless, a moderate increase in single-family homebuilding will more than offset this. In contrast, the future looks uncertain for retail and higher education, and bleak for non-residential categories such as office and warehouse construction.

Overall, the total construction spending forecast for 2024 is expected to increase by 10.7%. The current trend suggests that, on a macro level, material prices in the construction industry are stabilising in 2024. While specific product types and commodities, such as concrete products, lumber and electrical equipment, may continue to face challenges and price movements, pricing dynamics have remained relatively stable over the last six months.

There is a severe labour shortage in certain markets. The Associated General Contractors of America predicts that construction wages will rise between 5% and 7% in 2024.

Overall, it is projected that North America is ready for more consistent construction activity after a better-than-expected 2023, with construction cost escalation forecasted to be in the range of 4-6% in 2024.

The construction industry continues to grapple with the persistent challenges of high escalation, company insolvencies, interest rate uncertainty, low productivity, and skilled labour shortages. There are, however, indications that some of these impacts are beginning to ease and stabilise, and the outlook for construction activity is positive in Australia due to continued high housing demand and high government spending. New Zealand is currently in a technical recession and the outlook is not positive for the year with low demand and the government reducing capital spending.

General negative economic sentiment is still prevalent in both countries. Project cancellations, insolvencies and volatile escalation uplifts have all impacted confidence levels throughout the industry and financial markets. As a result, project feasibilities are failing, not only due to rising construction costs, but from increases across all major development inputs. This is ultimately resulting in lower levels of project starts.

There is potential for interest rates to fall in late 2024. As major cities continue to expand due to population growth, ongoing investment in both housing and associated infrastructure is being prioritised.

The region’s key factors impacting current escalation uplifts – namely. lack of labour, strong activity demand, subcontractor demand outstripping supply, and rising material costs – are abating, but will continue into 2024 and potentially into 2025 with lower escalation forecasts for New Zealand than those generally in Australia.