UK construction costs set to rise by up to 3.8% in 2024
Construction costs in the UK are predicted to rise by 3 – 3.8% this year, following an increase of 4.1% in 2023. Increases will challenge construction firms, which will need to develop new processes and capabilities to keep costs under control and projects on track.
The findings are shared in How to navigate 2024: Balancing challenge with opportunity, a report published by Currie & Brown, world-leading provider of cost management, project management and advisory services.
In the UK, cost increases could impact strategic initiatives, such as the National Infrastructure and Construction Pipeline (NICP). Around £1.56 billion could be added to the cost of delivering approximately £82 billion already earmarked for 2024* – the equivalent of 30 new schools or three new major hospitals. Unless swiftly identified and managed, such increases could impede the delivery of key projects within the pipeline or lead to substantial rescoping.
To help organisations navigate uncertainty and be more cost effective, the report advises project teams to act in the following areas:
- Adopt new ways of working, such as modular This will help reduce the impact of local skills and materials shortages, giving greater certainty on construction costs. Close collaboration between developers, consultants and contractors will also lead to greater clarity on schedules so that skilled labour can be secured early.
- Incorporate sustainability at every stage. Firms need to consider the carbon impact of projects at every stage of development to make sure these will meet current and future standards. Doing so will reduce the need for organisations to make further investments down the line. They will also benefit from operational efficiencies sooner, reducing the cost and whole life carbon impact of their estates.
- Embrace digitisation. From AI to advanced data analytics, digital technologies are offering new ways to enhance project ROI and predict and manage future challenges. Organisations must be open-minded to the potential of new technologies and work together to apply them where they will add the most value to projects.
Nick Gray, Chief Operating Officer, UK and Europe, Currie & Brown comments: “Cost escalation is a significant challenge for the construction industry, but it is also nothing new. For the past 10 years we have seen construction costs rise on average by 4.6% per year**. As an industry we need to stop firefighting and work with our clients to deal with this long-term trend.”
The UK is not alone in experiencing spiralling construction costs. Currie & Brown predicts cost increases across every one of its operating regions in the year ahead. The extent of these varies from market to market, but common drivers are clear:
Geopolitical turmoil including conflicts in Ukraine and the Middle East, is creating global uncertainty. Continued disruption to Red Sea trade routes, and consequent cost increases due to insurance and extended journey times, are likely to exert upward pressure.
Inflation remains the primary challenge for the construction industry and dominant driver of cost increases. Towards the end of 2023, inflation appeared to be easing across several markets. However, the situation remains changeable, as demonstrated by the small but surprising rise in UK inflation in December 2023 and the unwelcome warnings of recession in early 2024.
Sustainability rules are tightening globally. In the UK, the construction industry is challenged by multiple building standards relating to sustainable development and a plethora of regulation, such as new biodiversity net gain rules, introduced recently to the planning regime in England. While compliance with new regulations may drive up costs in the short-term, longer-term decarbonisation will go together with operational cost reduction.
Skills and materials shortages are driving up costs across all regions. The UK Government’s Infrastructure and Projects Authority estimates that around 600,000 workers will be needed to progress NCIP projects alone in 2024, with civil engineers identified as the most in-demand group.
Nick Gray concludes: “2024 will bring fresh challenges for the construction industry across global regions. In the UK, economic growth is likely to remain flat and the construction industry will have to contend with a continuing lack of skilled labour, expensive materials, sustainability compliance and sluggish productivity. But greater collaboration between the industry and clients – to develop new ways of working and to optimise the benefits of technology – will help to mitigate the impact of cost increases. Crucially, this is what the industry will need to do to ensure key projects can still be delivered on track and within budget.”
If you would like to read more stories like this, then please click here
