Public and private sector investors in Malaysia need to keep a close eye on construction conditions and think innovatively about how they keep their projects on track, according to Turner & Townend’s inaugural Malaysia Market Intelligence Report.
The report was supported by source data from the Malaysia’s Construction Industry Development Board (CIDB). Bolstered by the country’s strategic location, business-friendly environment and relative cost competitiveness compared to nearby markets, the report points to Malaysia’s growing potential as a hotspot for high-growth industries including data centres and specialist manufacturing in Southeast Asia.
The combination of investment in these areas alongside government-backed infrastructure programmes is increasing demand for construction despite rising costs, which are largely driven by the price of materials and labour.
The global professional services firm forecasts that tender price inflation (TPI) will sit at 3 percent through 2024. Turner & Townsend points to a relative easing of wider regional pressures that could help clients manage costs.
The rate of TPI has softened by 2 percentage points since 2023, as the negative effects of manufacturing backlogs, logistics and supply chain disruptions have dissipated.
The forecast complements the stability of national interest rates, which has been maintained at 3 percent since January 2024, giving businesses greater confidence to invest.
Overall construction activity has seen a considerable post-pandemic rebound and has been driven to its highest levels since 2019 according to the Bursa Malaysia construction index.
Turner & Townsend’s report highlights manufacturing and service industries – including those delivering critical components such as semiconductors – as key contributors to this trajectory, accounting for 97 percent of Malaysia’s approved private investments as of 2023.
Meanwhile, this has also coincided with state-backed interventions to cultivate growth. As part of the Madani economy framework, the government has made a substantial allocation of MYR 90 billion to development expenditure to support significant infrastructure programmes such as the Sabah Pan Borneo Highway, the Sabah Sarawak Link Road Phase two and the Penang Light Rail Transit.
Construction is also expected to benefit from the anticipated rise in tourism across 2024 and beyond. Initiatives such as Visit Malaysia 2026 are aiming to build on increased tourism rates and enhance the business case for infrastructure, hospitality and commercial investment.
Against this backdrop, Turner & Townsend argues that clients will need to get a strong handle on competing demands for skills and materials that could otherwise choke-off growth.
The report points to the negative impacts that a diminishing skilled workforce could have on development pipelines and anticipated projects, especially with the wider region drawing from the same labour pool.
This will also impact wage rates, with the data from CIDB recording an average 9 percent salary hike for in demand skilled labourers such as bricklayers and carpenters, since last year.
Escalating overheads is another challenge for businesses. Improving standards of worker accommodation, increasing amenity provision and robust health & safety parameters have presented new costs of compliance. Companies have also invested in the repatriation of foreign workers following the pandemic, which comes at a premium.
Crucial materials like aggregate, sand and concrete are experiencing upward price pressures – increasing by 1.4 percent, 8.5 percent and 10.6 percent, respectively as of last year. On the other hand, steel bars and cement prices eased due to the declining cost of essential global commodities such as iron ore and steel.
Dr Ong See Lian (pic), director and strategic advisor at Turner & Townsend, said: “The construction market is a critical factor for public and private sector clients as they look to maximise the economic opportunity across Malaysia. Prudent management of labour and materials will help ensure that the rising investment that we’re seeing across manufacturing, infrastructure and tourism can continue.
“To support both domestic and foreign appetite for growth, construction needs to move from a labour-intensive and traditional industry towards an innovative and technology-driven sector. Adopting and adapting initiatives such as Building Information Modelling can be pivotal in enhancing productivity and quality, while diminishing inefficiency.
“At the same time, cultural change is essential. Navigating cost pressures can be achieved through embracing collaborative contracting practices that encourage all parts of the industry to focus on shared aims and outcomes.”
Turner & Townsend is a global professional services company with over 10,000 people in 48 countries. Collaborating with our clients across real estate, infrastructure and natural resources sectors, we specialise in major programmes, programme management, cost and commercial management, net zero and digital solutions.
