AI boom puts construction costs under pressure

Inflation is forecast to hit 4% next year as region-wide labour shortages tighten the market.

Singapore's construction cost inflation is expected to rise to 4% in 2026 from 1% in 2025 as demand for AI infrastructure, particularly data centres, continues to grow across the region, according to a report by Turner & Townsend.

The consultancy's latest Global Construction Market Intelligence report ranked Singapore as the 55th most expensive construction market globally, with average construction costs of $4437.08 (US$3,439.8) per square metre (sqm).

Across Asia, investment in AI infrastructure is driving demand for new data centres, making the sector the region's most constrained in terms of contractor capacity.

Nearly 70% of Asian markets reported tightening or severe capacity constraints for data centre projects, the report found.

The report also said 90% of Asian markets are experiencing large or major impacts from skilled labour shortages, with mechanical, electrical, and plumbing (MEP) trades among the most affected.

These specialist trades are essential for building and operating data centres, with 82% of markets reporting shortages.

Beyond data centres, industrial and logistics projects continue to expand as companies reconfigure supply chains and invest in automation.

Unlike many other regions, residential housing remains the strongest-performing construction sector in Asia, followed by data centres, industrial and logistics developments, and office fit-outs.

Turner & Townsend said 16 of the 29 Asian markets it surveyed were classified as "hot" or "overheating," reflecting strong construction activity driven by investment in technology, manufacturing and logistics.

"The global construction market is shifting and new dynamics are reshaping the key drivers of cost performance," said Sumit Mukherjee, managing director for real estate for Asia at Turner & Townsend.

"There is a very real risk that growth in the pool of skilled labour needed to build data centres won't keep up with demand, particularly in Asia where the market for these types of assets is booming,” he said.

Mukherjee said the region's construction market is entering another period of strong growth, led by data centres, industrial developments, and logistics projects, with labour expected to remain a key source of cost inflation.

The findings are based on Turner & Townsend's 17th annual Global Construction Market Intelligence report, which covers 112 markets across 44 countries.