Rising Labor Costs Currently Dominating 25% of Construction Budgets

According to Colliers, the residential construction sector has seen the most significant cost escalation, with developers focusing on higher built quality and more amenity-rich gated communities to meet growing demand, further raising construction expenses. Labor costs have been the primary factor, with a 25% increase in labor expenses contributing significantly to higher construction budgets. Labor now accounts for more than 25% of the overall construction cost.

In the past year, construction costs have increased by approximately 11%, primarily driven by a substantial rise in labor expenses and a modest increase in construction material prices. The increased need for skilled labor and the associated costs for training, safety, and regulatory compliance have further driven up these costs.

However, the report highlights that the rise in prices for essential construction materials, such as cement, steel, copper, and aluminum, has been more subdued. Notably, cement prices have fallen by 15%, while steel prices have seen a slight decrease of 1%.

Despite the overall increase in construction costs, the commercial and industrial & warehousing sectors have experienced strong growth in new supply.

For example, the Indian office market saw 37 million square feet of new completions in the first nine months of 2024, while the industrial & warehousing sector added 22 million square feet. Developers are increasingly adopting technology and sustainability practices across various asset classes to manage the rising costs while ensuring timely project completions.