Malaysia's Construction Sector Remains Resilient Amid Trade Tensions And Cost Shifts
The report, which provides an in-depth analysis of construction costs across 99 markets worldwide, highlights Southeast Asia's increasing competitiveness added that while construction costs are rising in certain areas, the region is experiencing a significant surge in demand for critical infrastructure, particularly data centres, alongside a strong shift towards sustainable building practices. These combined factors are positioning Southeast Asia as an increasingly attractive destination for global investment in the built environment.
Brian Shuptrine, Asia Managing Director at Turner & Townsend, commented on the findings: 'We are seeing dynamic trends across Southeast Asia, where markets are not merely navigating global economic headwinds but actively seizing opportunities for growth through recalibration of costs and demand. The region's commitment to digital transformation and sustainability, and the strategic advantages of nearshoring, are fundamentally reshaping the construction landscape. This translates into significant opportunities for clients investing in future-proof assets, particularly within the rapidly expanding data centre developments and advanced manufacturing sectors.'
The report stated that the Malaysian construction sector is poised for continued growth, propelled by public infrastructure projects like the MRT3 Circle Line and Penang LRT, as well as robust private sector demand for digital infrastructure, notably data centres. While Kuala Lumpur maintains relatively low costs at US$1,354 per m², the recent expansion of the Sales and Service Tax (SST) to cover most construction work services (excluding residential buildings) introduces new cost pressures. The industry is responding by embracing digital solutions and collaborative models to protect profitability and increase competitiveness, with a gradual shift towards greener building practices like reducing embodied carbon.
As for Singapore, the sector remains one of Southeast Asia's most expensive markets, with average construction costs at US$3,104 per m². Despite anticipated inflation of 3.0% in 2025 and 5.0% in 2026, construction activity remains strong, with contract awards in the first four months of 2025 up approximately 60% compared to the same period in 2024. Challenges persist with tight contractor capacity, skilled labour shortages (especially in MEP trades), and rising waste management costs, driving interest in collaborative contracting models.
Meanwhile, Jakarta offers one of the region's most cost-competitive construction markets in Indonesia at US$943 per m², with a steady escalation of 3.0%. The market is gaining gradual momentum, primarily driven by strong activity in the data centre sector as Indonesia's digital economy expands. Local developers are increasingly securing large-scale data centre projects, showcasing growing in-country capabilities. However, reliance on high-quality imported materials for major projects can strain budgets.
Regional Challenges and Opportunities:
A significant concern across Southeast Asia is the persistent shortage of skilled labour, particularly in Mechanical, Electrical, and Plumbing (MEP) trades, affecting 90.9% of Asian markets, including Singapore, Malaysia, Indonesia, and Vietnam. This underscores the urgent need for investment in training and local workforce development to meet surging demand for green-collar professionals.
Sumit Mukherjee, Managing Director of Southeast Asia and Head of Real Estate of Asia at Turner & Townsend, emphasized that while cost remains critical, the focus is increasingly shifting towards value, efficiency, and supply chain resilience. 'The abundance of materials, especially from China, offers opportunities for faster and more cost-effective project delivery in some markets,' Mukherjee stated.
The report further indicates that data centers have overtaken industrial, manufacturing, and distribution as the top-performing construction sector in Southeast Asia, reflecting the soaring demand for digital infrastructure. Corporate occupier activity has also rebounded, with a modest uptick in hospitality, sports, and leisure developments as tourism recovers.
Looking ahead, nearshoring trends and the escalating demand for advanced manufacturing facilities are key drivers of heightened construction activity. Markets like Vietnam and Malaysia could benefit from a potential redirection of surplus Chinese material supplies if reciprocal tariffs with the U.S. persist, which could accelerate delivery, manage costs, and boost local manufacturing capacity. However, Malaysia's recent trade policy changes, including anti-dumping duties, introduce some uncertainty regarding future costs and supply chain decisions.
Turner & Townsend advises clients to prioritise upskilling domestic workforces and strengthening local supply chains to mitigate risks, improve cost control, and ensure successful project delivery in the region's dynamic and growing construction landscape.
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