CONSTRUCTION COST PERFORMANCE
Experiencing significant growth
Tendering conditions ↓
Profit margins ↓
Preliminaries ↓
Labour availability ↓
Skills shortage ↓
Material costs ↓
Procurement ↓
From our analysis of cost data from our projects delivered across the region, Riyadh remains one of the most expensive cities for construction in the region, with an average cost of US$ 3,112 per square meter. This marks an increase from the 2024 average construction cost of US$ 2,593 per square meter. These high costs are driven by ambitious developments, giga projects, and state-led initiatives, which have boosted demand for construction services, materials, and skilled labour. Despite these elevated costs, the market continues to present lucrative opportunities for construction companies.
Source: Turner & Townsend, Global construction market intelligence 2025
In contrast, Abu Dhabi remains the most cost-efficient, benefiting from a steadier pace of development, broader land availability, and more streamlined planning processes, with fewer high-end or large-scale projects compared to cities like Doha and Dubai.
Tendering conditions in KSA
Economic conditions significantly impact tender prices in KSA. The country's Vision 2030 initiative and its drive for diversity has led to substantial investments in infrastructure, healthcare, and education, driving demand for construction and consultancy services and influencing tender prices.
The Government Tenders and Procurement Law (GTPL), updated in 2019, ensures transparency, fairness, and competitiveness in government procurement processes. This law supports Vision 2030 by promoting efficient use of public funds and introducing innovative contracting methods, such as reverse auctions.
Currently, tender conditions in KSA feature healthy competition, with a balanced number of contractors tendering for projects. This competitive environment allows clients to choose from a range of qualified contractors, fostering competitive pricing. It is expected that competition will increase further over the next 12 months.
Profit margins
In 2025, KSA’s construction sector continues to exhibit strong profit margins, driven by escalating material costs and sustained demand for construction services. Office fit-out projects, in particular, stand out with profit margins ranging between 13-15percent, making them the most lucrative within the sector. The rising prices of essential materials such as steel and cement, which have seen increases of 5-10percent since 2023, have put pressure on overhead costs. Despite these challenges, many construction firms have successfully maintained profit margins of over 10percent.
The competitive nature of the market and the high demand for qualified firms is enabling the majority of contractors to negotiate higher fees, ensuring that the construction market in KSA remains profitable and attractive for both contractors and investors
"For smaller new build commercial projects with a gross floor area (GFA) of 2,500 square metres, we tend to see Tier 1 contractors typically achieve an overhead and profit (OH&P) percentage of around 15percent . Conversely, larger projects with a GFA of 50,000 square metres see a typical OH&P percentage of about 10 percent."
Dean Furey
Real Estate lead, KSA
Preliminaries for 2025
KSA’s preliminary costs in 2025 are shaped by the government's fiscal policies, economic growth projections, and inflation rates. This year, these costs are expected to rise by approximately 5-7percent, driven by ongoing inflation and high demand for key construction materials such as steel, cement, and concrete, which are facing supply chain constraints.
The Saudi Ministry of Finance has announced its 2025 budget, with total expenditures of SAR 1,285 bn and revenues of SAR 1,184 bn, resulting in a projected deficit of SAR 101 bn (2.3percent of GDP). While the budget emphasises continued funding for Vision 2030 programmes and projects, the deficit may lead to delays or budget adjustments for some initiatives to ensure financial sustainability.
As of today, preliminary costs for small commercial projects (2,500m² GFA) average around 10percent of total costs. For large commercial projects (50,000m² GFA), this percentage rises to approximately 15percent. Major mixed-use developments typically see preliminary costs ranging from 13-15percent in the local market.
Labour availability
The KSA construction market is projected to grow at an average annual rate of 5.2 percent between 2025 and 2028. In 2024 alone, the sector expanded significantly, creating around 50,000 new jobs. This surge in activity, driven by major developments and a strong demand for skilled workers, has contributed to rising labour costs across the industry.
Despite this growth, labour supply is struggling to keep pace. The national unemployment rate stood at just 3.7percent in Q3 2024, according to the General Authority for Statistics (GASTAT), indicating a tight labour market. This limited availability of talent, affecting both Saudi and non-Saudi workers, has intensified pressure on the construction sector.
In 2024, the shortage of skilled labour was one of the most pressing challenges for clients in KSA. That pressure continues into 2025, with notable skill gaps across multiple trades.
- Demand remains particularly high for green-collar roles such as solar and insulation installers, as well as traditional MEP trades, including mechanics, electricians, and plumbers.
- Finishing trades, such as plasterers, painters, and tilers, are also in short supply, along with site foremen and supervisors.
- Conversely, the availability of workers in structural trades, including steel fixers, carpenters, and concrete workers, along with general labourers, appears more balanced.
Overcoming the skills shortage
Despite these challenges, there is an optimistic outlook for the future. Over the next 12 months, we anticipate the availability of construction labour is expected to increase, potentially alleviating current shortages and supporting the Kingdom's ambitious development goals.
In the interim, investing in training and upskilling through government and industry partnerships can rapidly develop local talent, aligning with Saudisation policies. Additionally, by placing greater focus on work conditions, incentives, career progression, and fostering international collaboration, KSA can effectively attract, advance, and retain skilled workers.
Commodity and material cost data
In KSA’s construction market, several challenges significantly impact project timelines and feasibility. Inflated costs of construction and skilled labour shortages are among the most critical issues, causing substantial delays and budget overruns. Difficult contractual and legal conditions, along with excessive materials lead-in times, also have a high impact, further complicating project execution.
Medium-impact factors include government red tape, bureaucracy, delayed approvals, difficulties accessing credit, tight credit conditions, low workplace productivity, inefficient work practices, political instability, and trading tariffs. These issues contribute to decision paralysis, stalling progress and affecting project schedules.
Figure 4:
Material costs
*Note the above costs are based on recent market testing for supply only (excluding any works/installations etc)
"Ambitious projects in Saudi Arabia, such as Neom, Diriyah, New Murabba, Red Sea Global and the world's tallest building in Jeddah, are driving up demand for materials like steel and cement."
Kobus Havemann
Director, Country Manager KSA
Figure 5:
Material cost movements
Figure 6:
Sample construction costs – by item/job typology
Figure 7:
Asset type average costs
Procurement challenges
Over the past 12 months, the construction supply chain has experienced instability and moderate delays, a trend expected to continue throughout 2025. The primary procurement challenges in the local market include supply chain constraints, rising material costs due to increased demand, and skilled labour shortages. These factors are driving up project costs and contributing to project delays.
Despite these supply chain challenges, the Saudi Arabian Investment Authority expects that the influx of foreign labour will help alleviate some strain.
Figure 8:
Lead-in-times
Loose FF&E (Furniture, Fixtures, and Equipment) is facing the longest lead-in time in KSA, taking up to 25 weeks. Fire-related glazed partitions follow with a lead-in time of 20 weeks, while electrical equipment comes in third, requiring 18 weeks. The reduction in maritime traffic through the Red Sea and ongoing political tensions in the region, have strained labour and supplies, particularly in the mechanical, electrical, and plumbing sectors, as well as for high-rise construction and sports infrastructure engineering.
"Procurement is facing the challenge of meeting demand as key developments progress from design stage to construction. To address these issues initiatives such as investment in the local supply chain, forming partnerships with international suppliers and improvement in infrastructure is helping to alleviate the pressure."
Danny Waters
Associate Director, KSA
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