Rising construction costs: What does it mean for the UK commercial property market?

The rising cost of construction has become one of the defining challenges facing the UK in recent years. To explore what is driving these increases and what they might mean for developers, landlords and occupiers, the Building Surveying team at Kirkby Diamond came together for a roundtable discussion. What emerged was a clear picture of an industry that is under pressure, where cost certainty, early-stage planning and realistic expectations have never been more important.

What is driving the increase in costs?
Construction costs have been rising steadily across the UK over the years. While the pandemic in 2020 was the initial catalyst, the impact of increased energy prices and the wider cost of living crisis has prolonged these pressures. For the construction industry, this has translated into higher material costs, increased labour rates and greater overheads, all of which ultimately feed through to project budgets.

Rising contractor preliminaries
One of the most notable shifts discussed by our team was the increase in contractor preliminaries. Where prelims of around 15% were once typical, surveyors have recently seen figures closer to 20%. This reflects the growing cost of site management, compliance, welfare facilities and extended programme durations, all of which are becoming harder for contractors to absorb.

Labour shortages and wage pressure
Labour costs were another key theme. Our discussion acknowledged that rising living costs are having a direct impact on wage expectations across all workforces, construction included. Skilled labour remains in short supply, and contractors are having to pay more to attract and retain people. This has pushed up overall costs, particularly on projects that rely heavily on specialist trades.

Do higher costs mean higher quality?
A natural question arising from these increased costs is whether the sector has seen a corresponding improvement in quality. The consensus among our team was that, broadly speaking, it has not. While regulatory standards are more stringent, particularly around building safety, fire compliance and sustainability - these improvements are not always visible to clients or end users. This places greater responsibility on professional advisers to explain where money is being spent, and why.

How is the market responding?
With construction costs continuing to challenge viability, landlords and developers are increasingly exploring alternative financing options. While funding remains available, it is often more tightly scrutinised, with greater emphasis on risk management, cost certainty and return on investment.

The growing importance of early-stage cost planning
Our surveyors agreed that robust cost advice at the outset of a project is critical - not only to understand feasibility, but also to manage client expectations from the outset. Projects that proceed without clear cost parameters are at risk of delays or cancellation as budgets are tested. This is particularly relevant in the commercial sector, where many schemes are delivered on a speculative basis. If anticipated returns are eroded by rising build costs, projects may no longer stack up financially. The result is that some developments have to be paused, re-phased or shelved completely.

Construction methods and design 
From a construction perspective, our team did not observe a significant shift in how buildings are being delivered. Traditional methods remain dominant, and while modern methods of construction continue to be discussed, they are not yet being adopted at scale as a direct response to cost pressures. However, there was a sense that design input could come under threat as clients look for savings. In extreme cases, this could lead to a prioritisation of function over form. One surveyor noted the risk of a return to a more utilitarian approach to design echoing the brutalist era of the 1970s -where aesthetics and placemaking are sacrificed in favour of cost efficiencies.

Looking ahead…
The message from our team is one of realism rather than pessimism. Construction costs are unlikely to return to pre-2020 levels, but projects can still succeed with the right advice, careful planning and informed decision-making. Early engagement with professional teams, transparent communication and a clear understanding of risks are essential.

As the market continues to adjust, those who invest time and resource at the very start of projects will be best placed to navigate the complex construction landscape. In a period of sustained cost pressure, informed guidance and strategic thinking are fundamental to delivering viable, successful developments.