Home / Industry / Infrastructure /  Construction cost of greenfield projects up 5-7% in Q3: CBRE

NEW DELHI: The construction cost of existing greenfield and interior fit-out projects has risen 5-7% in Q3 2022, as per a report by CBRE titled ‘Project Management 2.0 - Driving Value in the ‘New Normal’ Era’.

“The year 2022 recorded an escalation in material costs due to curtailed production amid the pandemic and increased global shipping costs led by supply chain bottlenecks," the report said.

“Labour cost increased by 8-10% and reinforcement steel prices by about 20% Y-o-Y during Q3 2022 (reinforcement steel prices dip by 14% Q-o-Q in Q3 2022). Resolution of certain supply chain disruptions and reduction in price pressures in Q3 2022 brought about a directional swing and reduction in the index across most cities. We expect this trend to continue till the end of 2022," CBRE said.

“Looking ahead, inflationary pressures are widely expected to abate in 2023. This, alongside the resolution of supply chain disruptions and more active policy intervention from the government, might limit hikes in material prices," it added.

The report also highlights that cost pressures are likely to persist in the short term, even as overall cost increase is expected to recede in the coming quarters. Amid ongoing geopolitical complexities, it is anticipated that material prices may moderate in 2023, with an expectation of longer-than-usual lead times for material delivery and short-term labour scarcity.

Outlook for construction costs remains stable but cautious, as market volatility is likely to persist in 2023 along with monetary tightening, continued high inflation, a possibility of a recession in developed economies and geopolitical turmoil-related challenges. Therefore, CBRE forecasts a marginal rise in the overall construction costs during 2023 across cities, with Mumbai likely to witness a sharper rise.

However, strong demand for construction is likely to continue to push up employment in the construction sector. Currently, the availability of skilled construction workers remains a challenge despite increased wages, benefits, and incentives being offered by employers.

Fuel price volatility may also impact overall input costs in 2023. The report also suggests that the overall impact of costs related to health initiatives such as sanitization, periodic check-ups, labour maintenance, and additional insurance requirements will subside in 2023. CBRE anticipates that for 2022-203, the impact of health and wellness initiatives on the overall cost will further reduce by around 1.5-2%.

“Despite supply constraints, the demand side of the equation is bolstered this year by rental increases and market demand. Construction demand is likely to remain strong in the near term. We expect a comparatively stable outlook for the Indian economy with the possibility of potential economic slowdown; however, considerable pent-up demand for new construction—including government infrastructure projects—should largely sustain construction activity in India," said Anshuman Magazine, chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE.

“As the cost of major materials such as cement and steel has declined Q-o-Q and a gradual improvement in supply chain bottlenecks was witnessed during Q3 2022, construction cost has stabilised across asset classes and cities. Despite headwinds, construction demand is expected to remain strong in the near term. Considerable pent-up demand for new construction should largely sustain the marginal increase in cost construction," said Gurjot Bhatia, managing director, Project Management - India, SE Asia, Middle East, and Africa.

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