Construction cost inflation in the Middle East is forecast to reach 5.1% in 2027, the second-highest of any region worldwide, as global demand for data centres tightens contractor capacity and deepens shortages of skilled labour.

The projection comes from the Global Construction Market Intelligence report, published by UK programme manager Turner & Townsend. The report draws on data from 112 markets across 44 countries, gathered between 2 and 20 March 2026.

Only Africa is expected to see steeper cost escalation, at 7.0%. Australia and New Zealand follow the Middle East at 4.9%, while the EU records the lowest figure at 2.8%. Globally, construction cost inflation is set to rise from 4.2% in 2025 to 4.5% in 2026 before flattening in 2027.

The report identifies a two-speed market. Data centres are now the most in-demand construction sector globally, followed by industrial and logistics. More than 70% of the 112 markets surveyed report tightening or overstretched contractor capacity in the data centre sector. By contrast, more than 79% of markets show balanced or spare capacity across hospitality and leisure, residential and commercial development.

Skills shortage

Labour availability has displaced material costs as the primary driver of cost escalation. About 71% of markets report labour shortages. Skills deficits are most acute in mechanical, electrical and plumbing trades, with 87% of markets reporting MEP shortages. These trades are central to data centre delivery.

The findings carry weight for the GCC, where sovereign programmes in Saudi Arabia and the UAE are competing for the same contractor pools that AI infrastructure now draws on. Regional governments have announced large data centre commitments alongside giga-projects, housing and transport schemes, placing further strain on an already stretched supply chain.

Turner & Townsend says that construction input costs have stabilised over the past year, with supply chain resilience built since the pandemic limiting the impact of recent volatility. Cost drivers are becoming more localised and sector-specific rather than the product of international shocks.

Energy market exposure introduces a separate risk. The report cites oil prices, higher transport and freight costs, and volatility in petrochemical inputs as significant challenges. Disruption to shipping routes lengthens lead times and adds supply chain volatility.

Conflict assumptions

The baseline scenario assumes a relatively short-lived conflict in the Middle East and a moderate rise in energy commodity prices in 2026. A prolonged or escalating conflict would produce more pronounced effects on inflation, supply chains and construction costs.

New York remains the world's most expensive construction market at $7,938 a sq m, followed by San Francisco at $7,883 and Geneva at $6,985. London ranks fifth at $6,032. North America carries the highest regional labour costs, with an average hourly wage of $79.5, ahead of the EU at $75.6 and Australia and New Zealand at $68.0.

Digital adoption remains uneven, though momentum is building. Some 66% of markets report that AI capability now carries more weight in tendering and client discussions than it did 12 months ago.