Construction costs in Saudi Arabia rose between 3.4% and 4.2% in 2024, similar to the MENA’s 4% increase, driven by material shortages, heightened labor demand, and inflation in raw materials and energy, according to Stonehaven’s KSA Construction Cost Benchmarking Report (pdf). Geopolitical instability and extreme weather events have further strained project timelines.

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Increasing bills: The Tender Price Index (TPI) has averaged 6.1% growth over the past four years and is projected to climb 7.4% in 2025, reflecting rising contractor expenses linked to labor and living costs.

Global tariffs could push costs up by 7% this year as materials become more expensive and gigaprojects draw more resources, Stonehaven said in a Linkedin post.

Digging deep into the drivers: Gigaprojects like Neom and Qiddiya are driving up construction costs through their heavy demand for skilled labor, materials, and specialized services. Imported material price volatility, supply chain disruptions, and global demand are compounding these pressures.

Not enough labor to go around: On top of the acute labor shortage, large-scale projects are under pressure from labor costs, which account for around 40% of the total project costs. Public-private partnerships are helping bridge the gap through training and upskilling programs — critical to meeting workforce demands for such gigaprojects, the report said.

By the numbers: Saudi has over USD 1.7 tn in active construction projects, while having some USD 1.5 tn for future projects – 39% of the total Mena pipeline — of which USD 582 bn is allocated to transportation, infrastructure, and utilities, while USD 950 bn is allocated to asset construction.

ICYMI- Contract awards hit a record USD 146.8 bn in 2024, up from USD 118.7 bn in 2023, according to Kamco Invest.

On the tech front: In 2025, digital transformation in the Saudi construction sector is expected to center on tools like BIM for better collaboration, AI for managing risk and costs, and modular construction for speed and sustainability, Stonehaven said in the report. The growing adoption of data analytics and IoT is enabling real-time decision-making, while robotics and automation are helping to ease labor shortages and boost productivity.

BUT- High upfront investment, training needs, and integration complexity remain adoption hurdles — requiring a long-term, collaborative approach.

Construction’s green thumb: The industry is adopting low-carbon materials, renewable energy, and efficient water and energy systems, the report read. Carbon footprint tracking and circular economy initiatives, such as recycling and lifecycle assessments, are becoming standard, with green certifications like LEED and Estidama gaining gravity.

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