Construction escalation continues to place upwards pressure on project budgets, although the rates of growth seen now are far from the highs evident in 2021 and 2022. Factors informing our escalation forecasts are:

• Current activity – buoyant and diverse activity gains, albeit softening evident in most sectors.
• Leading indicators – data is typically trending downwards while confidence has seen a boost lately.
• Materials cost and availability – slight cost increase in Q1 2024, but nominal and contained.
• Workforce – wage growth continues to increase, and earnings metrics are likely to remain sticky.
• Machinery and equipment – isolated supply constraints could maintain escalation growth in the short term.

Each point has a nuanced impact, rather than a notable one, on overall construction cost escalation allowances. While some levers could place additional pressure on prices, others may take some heat away. As a result, our forecast for 2024 remains the same as previously issued in Q1 2024 – staying at 3.5 percent.

In 2025, our forecast has reduced marginally from 2.6 percent to 2.5 percent. Despite the economy weathering political uncertainty and geopolitical turbulence, demand has been more resilient than previously thought, and workloads press ahead. However, sectors impacted by capital flows will be more susceptible to softening in 2025 as interest rates are likely to remain high in 2024, as general inflation continues to be elevated.

Our long-term forecast for 2026 should remain anchored to the previous estimate, approximately 3.0 percent. Albeit a greater margin for error, +/-2.0 percentage points around the baseline prediction, exists when considering longer horizons. This forecast is underpinned by historical labor constraints and the unlocking of renewed expenditure following presidential elections, keeping wages high and workloads stable.