Currie & Brown: Data Centre Builds Face Rising Costs

Oil price volatility will continue to impact the price of construction materials in the UK, despite the agreement to end the conflict between the US and Iran, according to research from cost management and advisory services firm Currie & Brown. 

Steel prices could increase by up to 9.1% by September, should oil prices remain high, while aluminium and copper could rise by 12.4% and 5.5%, respectively. 

Demand for aluminium and copper is especially high at present due to widespread investment in digital infrastructure and energy transition projects, in particular data centres, as well as mechanical, electrical and plumbing (MEP) intensive construction projects, such as hotels.  

As a result, data centre construction costs could increase by up to 6.8%, while hotel builds could see costs rise by approximately 7%, the research predicts.

Data centres and hotels hit hardest 

Data centre construction projects rely heavily on the materials that stand to be hardest hit by volatile oil prices. Once built, their huge ongoing energy demands mean running costs are expected to rise too.

Currie & Brown’s analysis also argues that data centres face an extra complication in that there is pressure to get them online quickly. Planning decisions are made months in advance to ensure speed to market, so when manufacturing, processing and transport costs for materials are disrupted, projects are thrown off budget.

Hospitality projects are reliant on a broad range of global supply chains that are vulnerable to rising energy costs, including the manufacture, transportation and availability of furniture, fixtures and equipment (FF&E), as well as MEP systems.

Ritchie Davidson, Senior Director and Global Hospitality Sector Lead at Currie & Brown, says: "The strongest hotel projects don't try to remove uncertainty. They focus on the outcome and remain flexible in how they get there.

“That lets teams respond to changing costs, lead times and market conditions without losing sight of what the project is trying to deliver."  

Global impact varies by region

The research shows the effect of oil price volatility will not be felt evenly across global construction markets. In India, steel prices could rise by up to 18%, caused by strong domestic demand and reliance on imports. 

Singapore, by contrast, could see steel costs increase by just 4.3%, partly because major projects have already secured materials through early procurement strategies.

The contrast illustrates how the same market shock can produce very different outcomes, depending on the local market. Operators who make procurement decisions months in advance can expect some insulation. For those who don’t, the exposure is much greater.

Construction markets in the Middle East and Southeast Asia face their own variables, according to the report, including currency exposure, import dependency and the pace of domestic demand. 

For global contractors and developers operating across multiple markets, things can get complex very quickly. A project team managing programmes in both India and Singapore, for example, could be navigating very different cost trajectories for the same materials at the same time.

Flexibility is key for construction leaders

The US-Iran agreement has reduced pressure on energy markets, but there is still uncertainty over when and where oil prices will settle, and how supply chains will respond in the coming months.

The research suggests the companies that will cope best are the ones that prepare for cost fluctuations, rather than waiting for the market to stabilise.  

Alan Manuel, Group Chief Executive Officer at Currie & Brown, says: "Construction projects don't stop every time markets become volatile. Investment decisions still need to be made, contracts still need to be signed, and programmes still need to move forward.

“The organisations best placed to succeed are not those trying to predict every disruption. They are the ones taking the time to understand the risks and build flexibility into their plans and delivery models from the outset."

Market shocks are becoming a more regular feature of the operating environment, the research argues, whether caused by geopolitics, inflation, trade policy or supply chain disruption. 

Construction leaders who build flexibility into projects and programmes will be best placed to absorb disruption without being knocked off course.