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 commercial property market. To explore what is driving these increases and what they mean for developers, landlords, and occupiers, the building surveying team at BTG Eddisons came together for a roundtable discussion.

What emerged was a clear picture of an industry 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 for several years. While the pandemic in 2020 was the initial catalyst, the prolonged impact of higher energy prices and the wider cost-of-living pressures have extended those headwinds.

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 figures of around 15 per cent were once typical, our surveyors have recently seen prelims closer to 20 per cent. This reflects the growing cost of site management, compliance, welfare facilities, and extended programme durations, which are now becoming harder for contractors to absorb within their pricing.

For clients, this shift reinforces the importance of quantity surveying and detailed cost planning at the earliest possible stage. A preliminary cost estimate that does not account for current prelim levels will understate the true project cost before construction has even begun.

Labour shortages and wage pressure

Labour costs were another key theme. 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 is pushing up overall costs, particularly on projects that rely heavily on specialist trades.

The skills pipeline remains a structural concern for the industry. This is not a short-term problem that will resolve itself as inflation eases. It is a longer-term challenge that well-advised clients will factor into their programme planning and procurement strategy from the outset.

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 clearly where money is being spent and why. Our insight on what is project management in construction covers the professional oversight role in more detail for those unfamiliar with how cost and quality are managed through a construction programme.

How is the market responding?

With construction costs continuing to challenge viability, landlords and developers are increasingly exploring alternative financing options. Funding remains available but is more tightly scrutinised, with greater emphasis on risk management, cost certainty, and return on investment. Schemes that cannot demonstrate a credible route to the required return are finding the finance conversation harder than it was three years ago.

Development monitoring is becoming more important in this environment, as lenders want independent professional oversight of project cost and progress, and clients benefit from having that scrutiny in place regardless of whether a funder requires it.

The growing importance of early-stage cost planning

Our surveyors agreed that robust cost advice at the outset of a project is now critical, not only to establish feasibility but to manage client expectations from day one. Projects that proceed without clear cost parameters are at risk of delays or cancellation as budgets are tested against market reality.

This is particularly relevant in the commercial sector, where many schemes are delivered speculatively. 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 entirely.

Our guide to how to manage a commercial refurbishment project without going over budget sets out the practical steps that reduce this risk from the outset.

Construction methods and design

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.

There was, however, a concern that design input could come under threat as clients look for savings. In extreme cases, this risks a prioritisation of function over form, echoing the more utilitarian approach of earlier eras, where aesthetics and placemaking were sacrificed in favour of cost efficiency. This is a risk worth naming at the briefing stage of any project, before the design process begins in earnest.

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. Those who invest time and resources at the very start in planning and feasibility, thorough cost consultancy and clear professional oversight will be best placed to navigate the current landscape.

In a period of sustained cost pressure, informed guidance and strategic thinking are not a luxury. They are fundamental to delivering viable, successful developments.

Speak to our building consultancy team

Whether you are appraising a new development, planning a refurbishment, or trying to understand the true cost of a project before committing, our building consultancy team can help.

We provide cost consultancy, contract administration, quantity surveying, and the full range of project and building advisory services across the UK. Complete the form below to discuss your needs today.