Saudi Arabia Construction Costs Rise 2.2% Annually as Regional Disruptions Raise Concerns

Saudi Arabia’s construction costs increased 2.2 per cent year on year in September, driven by higher equipment rental, labour, building material and energy expenses, according to official data, as regional conflict threatens to disrupt supply chains and increase logistics costs.

The General Authority for Statistics (GASTAT) reported that construction costs in the residential sector rose 2.1 per cent annually, while costs in the non-residential sector increased 2.6 per cent.

In the residential sector, basic material costs climbed 1.7 per cent, including a 3.5 per cent rise in timber and joinery prices. Equipment and machinery rental costs increased 4.1 per cent, while labour expenses rose 1.5 per cent and energy costs advanced 3 per cent.

Non-residential construction faced stronger pressure from equipment rentals, which rose 5.8 per cent. The cost of machinery and equipment rented with an operator increased 7.2 per cent. Labour costs climbed 2 per cent, while energy expenses rose 3 per cent.

Basic materials in the non-residential sector became 1.8 per cent more expensive. Other building materials recorded a 4.3 per cent increase, while timber and joinery prices rose 2.1 per cent.

Despite the annual increases, the overall construction cost index remained unchanged between August and September, with costs stable across both residential and non-residential projects.

Munir Al-Daraawi, founder and chief executive of Orla Properties, said the annual rise indicated that construction cost pressures remained moderate.

He said developers needed predictable access to materials, labour and specialist services to plan projects against the scale of Saudi Arabia’s development ambitions. He added that costs alone did not determine market conditions, as the ability to complete projects within realistic budgets and meet demand from buyers and occupiers was also important.

Saudi Arabia’s construction market continues to expand despite cost pressures. The Al Rajhi Capital Saudi Construction Index, compiled by S&P Global, showed that activity grew for a fifth consecutive month in September. The seasonally adjusted index eased to 54.4 from 55.4 in August but remained above the 50-point level separating expansion from contraction.

Knight Frank valued the kingdom’s project pipeline at $2.07 trillion in the first half of 2026. The consultancy forecast construction output to reach $190.4 billion this year, up from $179.4 billion in 2025, before rising to $250.2 billion by 2030.

However, the consultancy warned that higher costs and logistical difficulties could lead developers to revise project schedules or reassess plans to protect commercial viability.

Rajesh Duneja, a partner at Arthur D. Little Middle East, said contractors and suppliers appeared to be absorbing some additional freight and input costs rather than immediately passing them on to clients.

He warned that the situation could change if disruption around key Gulf shipping routes continued, eventually pushing additional expenses into project budgets.

Al-Daraawi said the stable monthly figures offered a positive short-term signal but stressed that developers should strengthen procurement planning and maintain reasonable budget contingencies.