Construction escalation pressures are not as strong as they once were, with bid price growth increasing at a slower pace. Isolated hot spots exist, but tenders are becoming increasingly competitive, with spreads narrowing and submission numbers increasing. However, escalation has not yet seen a reduction overall, just a softening of growth rates. Factors informing our escalation forecasts are:

• Current activity – US economy on track for soft landing and resilient growth. Construction is less strong – dependent on sector and location.
• Leading indicators – are a mixed bag and suggest a sluggish start to 2025, with an uptick later in the year. Optimism remains, however.
• Materials cost and availability – Q3 2024 saw further reductions in general. Geopolitical risks may temper production cost reductions as companies up risk allowances and energy costs may add further pressure.
• Workforce – wage growth is being tempered. However, skills shortages persist, particularly for large projects and programs in desirable sectors and locations.
• Machinery and equipment – steady easement in cost. Growth should continue to transition downwards as interest rate changes filter through into lease costs and/or credit for expenditure.

Escalation is projected to close the year out at 3.25 percent, consistent with previous estimates. Although many changes have occurred recently, the effects of the US presidential election and lower interest rates are expected to be more pronounced in 2025.

Consequently, our 2025 bid price forecast has been adjusted slightly upward, from 2.5 percent to 3.0 percent. On the positive side, deferred investment decisions could be unlocked due to more favorable business conditions and supportive policy changes, boosting demand. While on the other, material costs could grow through increased use of tariffs and strained supply chains. Still, uncertainly will persist in the short term, which could hold back the sector. The net effect, however, could be one of price pressure growth.

In 2026, a bit more stability should arise, and construction activity ought to strengthen as investment decisions increase and are expediated alongside continued skills shortages. This has led to a change in our escalation expectations, with growth set to increase by 0.5 percentage points to 3.5 in 2026.

However, with continued market volatility and persistent uncertainty around government policy decisions, the margin for error of escalation forecasts remains high, with variability of +/-2.5 percentage points around baseline predictions.