Mega-projects in the pipeline, such as Changi Airport's Terminal 5 and new developments at Singapore’s two integrated resorts, are likely to push up construction costs in Singapore next year, according to Surbana Jurong (SJ).
These upcoming large-scale projects will mean greater demand for contractors, pushing prices upwards, says Ho Kong Mo, senior executive director, project and cost management, SJ.
Mechanical and electrical (M&E) costs, in particular, have risen by approximately 30% from pre-pandemic times, says Ho. M&E costs typically account for around 25% to 40% of the total construction cost, says Ho to The Edge Singapore.
M&E costs are set to increase further, by between 15% and 20%, in the remainder of this year, according to a new SJ report.
SJ’s Mechanical & Electrical (M&E) Construction Cost Outlook 2024 attributes this increase to a list of factors, such as a 77% surge in logistics shipping costs, a 9% rise in labour costs, a 15% increase in copper prices and a shortage of M&E contractors.
See also: Construction demand to rise to $38 billion in 2024: BCA
“During periods of heightened construction activity, the competition for resources and materials intensifies,” reads the report. “This increased competition not only leads to higher prices for raw materials and equipment but also results in a scarcity of skilled labour… With a limited supply of M&E contractors capable of handling large-scale projects, these contractors often have the leverage to negotiate higher prices for their works, further driving up M&E costs.”
The Building Construction Authority (BCA) forecast in January that construction contracts between $32 billion and $38 billion would be awarded in 2024, with the public sector contributing about 55% of the total demand.
See also: Hiap Seng announces rights issue to raise $3.3 million
Building on this forecast, SJ projects “substantial demand” for M&E works in the remainder of 2024, which is expected to surpass the $10 billion mark.
Sustainability pressures
In addition, Singapore’s focus on reducing carbon emissions from the built environment sector and enhancing energy efficiency “significantly influences M&E costs”, says SJ.
In order to meet the Building and Construction Authority’s Green Mark Super Low Energy (SLE) Building standards, for example, developers and consultants must implement “advanced energy-efficient technologies and systems” throughout the building, adds the report. This includes upgrading or installing M&E equipment such as Air-Conditioning and Mechanical Ventilation (ACMV) systems, lighting fixtures and renewable energy systems like solar panels.
In addition, Ho notes that existing building owners with gross floor area (GFA) exceeding 5,000 sqm must comply with the new Mandatory Energy Improvement (MEI) regime, which will kick in from 3Q2025.
“The new MEI regime will require owners of energy-intensive buildings to engage a professional to carry out an energy audit and implement measures to reduce the building’s energy consumption,” Ho explains.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
That said, building-owners can balance higher upfront capital expenditure (capex) with lower operating expenses (opex) in the long run, Ho adds. “By investing in higher upfront capital costs for sustainable or energy-efficient solutions, owners can often achieve reductions in operating costs over time with lower energy consumption.”
Possible workarounds
Even after construction, the utility cost of air-conditioning and mechanical ventilation chiller plants “very quickly spiral post-construction” when buildings start operations, says Ang Chee Meng, director at facility manager and operator SMM, an SJ company. They may make up the bulk of the energy tariffs, at about 60% of total opex, he adds.
Investing in smart building solutions can help owners strike this balance, says Ang, whose firm works with commercial, mixed-use, mission-critical and educational institutions, among others.
Through the use of sensors, smart buildings mitigate further cost pressures by maximising the life cycle of “capex-heavy equipment”, such as ACMV, lifts and air-handling units through a data-driven approach, he adds.
“With access to detailed data, more building owners can identify which equipment to retrofit, which is a cheaper option compared to replacing the whole system, which can be prohibitive,” says Ang. “This extends the life cycle for equipment, maximising the return on investment.”
Photo and charts: Surbana Jurong
