Construction costs, as far as the UK is concerned, are all set to rise by 3–3.8% in 2024, followed by a rise of 4.1% in 2023. Increases are believed to challenge construction firms, which will go on to need to develop novel processes as well as capabilities so as to keep costs under control and, at the same time, the projects on track.
All these findings happened to be shared in How to Navigate 2024: Balancing Challenge with Opportunity, which is a report published by Currie & Brown, the world-leading provider when it comes to cost management, project management, as well as advisory services.
It is worth noting that in the UK, the surge in the costs could very well go on to effect the strategic initiatives, such as the National Infrastructure and Construction Pipeline- NICP. Almost 1.56 billion could go on to get added to the cost when it comes to delivering around £82 billion, which has already been earmarked for 2024- all this being equivalent to 30 new schools or three new prominent hospitals.
Unless all this is swiftly identified as well as managed, increases such as these could impede delivery when it comes to key projects within the pipeline or even lead to quite substantial rescoping.
To help the organizations navigate uncertainty and, at the same time, become all the more cost effective, the report goes on to advise the project teams to go ahead and act in the following areas:
- Adopt some novel ways of working, like modular- This will help to reduce the effect of local skills and, at the same time, material shortages, thereby offering even greater certainty when it comes to construction costs. Collaboration, which is pretty close between developers, consultants, as well as the contractors, will also go on to lead to greater clarity in terms of schedules so that skilled labor can go on to get secured much earlier.
- Taking into account sustainability at every stage- Firms have to consider the carbon effect of projects across every stage of development so as to make sure these go on to meet present as well as future standards. By way of doing so, there will be a reduction in the need for organizations to make more investments down the line. They will also get benefitted due to the operational efficiencies sooner, thereby reducing the cost as well as the entire life-carbon impact of their estates.
- Embracing digitisation- Right from AI to advanced data analytics, digital technologies happen to be offering new ways in order to enhance project ROI and, at the same time, also predict as well as manage future issues. Organizations must have an open-mind to the potential when it comes to new technologies and, hence, work together so as to apply them where they will go on to add the most value to projects.
The Chief Operating Officer- UK and Europe for Currie & Brown, Nick Gray, goes on to say that the cost escalation happens to be a significant challenge for the construction industry, but the fact is that it is also nothing new. For the last 10 years, they have gone on to see construction costs increase on average by 4.6% every year. As an industry, they indeed need to halt the firefighting and go ahead and work with their clients in order to deal with such a long-term trend.
The fact is that the UK isn‘t alone when it comes to going through spiralling construction costs. Currie & Brown forecasts a cost increase throughout every one of its operating regions going forward in the year. The enormity of these varies from market to market, but the common drivers happen to be very clear:
The geopolitical turmoil, such as conflicts in Ukraine as well as in the Middle East, happens to be creating a level of global uncertainty. Consistent disruption to the Red Sea trade routes has caused the cost to increase because of insurance as well as extended journey times, and all these are likely to exert upward pressure.
It is well to be noted that inflation happens to remain a primary challenge when it comes to the construction industry and also a dominant driver in terms of cost increases. Towards the end of 2023, inflation went on to appear to be easing throughout several markets, but the situation remains changeable, as demonstrated via small but surprising rise in UK inflation in December 2023 and also the unwelcome warnings concerning the recession in early this year.
Sustainability rules happen to be tightening across the globe. In the UK, the construction industry has been challenged by numerous building standards that are related to sustainable development, as well as a stream of regulations like the new biodiversity net gain rules that have been introduced recently to the planning regime in England. Although compliance when it comes to new regulations may drive up costs in the short term, longer-term decarbonization is bound to work together with the decrease in operational costs.
Skills as well as material shortages happen to be driving up costs throughout all the regions. The UK Government’s Infrastructure as well as the Projects Authority go on to estimate that almost 600,000 workers will be required to make growth in NCIP projects alone in 2024, with civil engineers being identified as the most in-demand group.
Nick Gray goes on to say that 2024 is going to bring fresh challenges when it comes to the construction industry all through the global regions. In the UK, economic growth is most likely to remain flat, and the construction sector will have to contend with a dearth of skilled labor, costly materials, sustainability compliance, as well as sluggish productivity. However, greater collaboration between industry and clients so as to develop novel ways of working and to make utmost use of the benefits of technology will go on to help mitigate when it comes to the impact of cost rise. Importantly, this is what the sector will need to do so as to ensure key projects can still be delivered on track and within budget.
