Regional overview

Asia

⏱ 4 min read

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Shifts in the manufacturing heartlands

Author: Sumit Mukherjee, Regional Real Estate Lead, Asia

An economic slowdown in China and global trends towards nearshoring are reshaping the Asian construction market and opening up new opportunities for emerging economies.

In previous years, the gap in maturity between so-called ‘established’ and ‘emerging’ markets has meant divergent economic and construction trends. Yet, in 2024, Asia is seeing more consistent shifts across the region.

The rebalancing of China’s economic dominance and manufacturing sector is a major factor. GDP growth in the country is expected to slow 4.6 percent in 2024 from 5.2 percent last year, according to the IMF’s April 2024 World Economic Outlook.

In March, inflation sat at just 0.1 percent. The Chinese government’s response to its economic challenges is not yet clear, making the future of the market unpredictable and dampening investment confidence. In the construction sector, most Chinese markets remain near the bottom of the overall cost table, with the expected exception of the unique and expensive Hong Kong (at an average US$4,500 per m²) and Macau (US$4,269 per m²) markets. China’s abundant labour force continues to keep costs low in mainland markets.

Current tendering condition

Future market outlook

Japan, which has often seen its cities come top of the ICMS ranking for construction cost, no longer has any markets in the top 10. This is more a reflection of globally high inflation, the devaluation of the yen and the country’s comparative ability to manage escalation while supporting high growth in industries including data centres, advanced manufacturing, retail and urban development. Osaka – the world’s 17th most expensive market to build in at US$3,985 – is seeing a development boom as it prepares for EXPO 2025.

Moving centres of manufacturing and tech

The position of China has seen other markets move on the opportunities in advanced manufacturing, an area which has long been a cornerstone of the Asian economy – especially chips, semiconductors and gigafactories. A trend towards nearshoring has helped stimulate demand for local manufacturing bases to reduce reliance on cross-border trade.

In overall cost terms, Indian markets tend to see lower prices than Chinese ones, yet predicted construction cost inflation is greater in India, and when it comes to industrial construction specifically, India is higher up the table. In Bangalore, for example, advanced manufacturing construction costs are now US$1,861 per m², compared with US$568 per m² in Shenzhen.

Malaysia and Indonesia are also seeing high growth in manufacturing as part of this shift, and in Jakarta, the cost of advanced manufacturing construction has sharply risen.

Malaysia especially is making the most of another trend too – the growth of data centres across Asia. Corporates across the region are moving to more cloud-based solutions, and the Asian population has increasing access to broadband, meaning much greater digital infrastructure is needed.

India, in particular, is seeing strong industrial investment as it looks to take over from China as the region’s economic leader – and this is reflected in the rise in relative construction costs.

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Changing demographics drives new investments

Across Asia, growing populations and increasing wealth are changing consumer habits. The leisure and hospitality markets across Asia are resurgent, as are high street retail and automotive retail. More people have money to spend on luxury goods and experiences. The result is greater construction and fit-out work to keep up with the increase in demand.

The population boom is also driving investment in new education and healthcare facilities, and with attitudes to old age care changing, especially in urban communities, later living is becoming an area of significant expansion for the first time.

The cost of construction in these sectors remains very affordable, primarily due to low wages. Average Asian wages have risen from US$11 per hour in 2023 to US$13 this year – but in most of the emerging markets, they are still in the low single digits.

Malaysia, Indonesia and India are all seeing challenges in access to skilled, specialist workers – and clients should look closely at local development pipelines to predict where bottlenecks may occur.

It is not just demographics that are shifting – whole cities are moving too as climate resilience rises up the agenda. Jakarta, for example, is sinking into the sea at an alarming rate, and Indonesia is building a new capital city, Nusantara, at a cost of around US$35bn. This is just one example of where the impact of climate change is being felt more acutely by many across Asia, and, as a consequence, sustainability is moving up the agenda.

China has positioned itself well in the sustainability supply chain, and the growing focus may benefit them as well as creating opportunities in development sectors across the continent. Net zero and projects to mitigate climate disruption can be expected to be major areas of investment in the years to come, and clients should be looking to move ahead of the curve.

An increasing challenge is the availability of specialist labour in markets where high-tech construction demand is ramping up faster than training can keep up.