Construction escalation continues to grow, albeit at a more manageable pace, with a variety of dynamics at play influencing pricing decisions. Below are some of the factors at the forefront of our decision making when it comes to calculating escalation:

• Current activity – construction spending remains healthy across many sectors and geographies.
• Leading indicators – pipelines continue to soften, and confidence is weakening.
• Materials cost and availability – costs growth has stabilized and availability is improving.
• Workforce – wages are rising as skills shortages persist, while industry activity outpaces labor growth.
• Machinery and equipment – steady transition to lower growth, but shortages and/escalation persist.

The above points see our 2024 escalation estimate revised upwards, increasing by 0.4 percentage points to 3.5 percent. Despite the economy weathering political uncertainty and geopolitical turbulance, demand is more resilient than previously thought and workloads press ahead.

The ramifications of a growth in activity at the end of 2023 may see workloads soften further down the line and construction growth could ease further in 2025. From a price perspective, material cost escalation should continue to recalibrate, despite geopolitical shifts, and machinery and equipment settling.

While labor costs are likely to be sticky, steadier construction activity should unlock capacity and capability, freeing up skills availability further as the market transitions downwards. This could see price growth in 2025 move down by 0.2 percentage points to 2.6 percent.

Our three-year escalation forecast from 2024 now extends to 2026. With forecasting accuracy weakening over time, long-term forecasts typically align with historical rates to minimize errors. This value is close to 3.0 percent and that is the level of our 2026 forecast. Input cost and delivery bottlenecks should alleviate, and high interest rates and inflation levels subside, encouraging demand growth.