India’s Construction Costs Surge up to 14% as Retail and Luxury Housing Lead Market Escalation: Report
New Delhi, April 17, 2026: India’s construction landscape is undergoing a significant transformation as shifting consumer preferences and structural economic changes drive project costs upward across all major real estate segments.
According to the newly released “Building Smarter: Construction Cost Insights 2025” report, co-authored by Savills India and hospitality consulting firm Hotelivate, construction costs in the country surged between 3.8% and 13.9% from 2023 to 2025. This escalation comes at a time when India’s construction market, valued at USD 685 billion in 2025, is on a trajectory to reach USD 1.2 trillion by 2034, fueled by aggressive infrastructure investment and urban expansion.
The retail sector emerged as the primary driver of cost increases, with mall construction costs jumping by 13.9%. This spike is attributed to growing architectural complexities, including intricate facades, deeper basements, and significantly higher Mechanical, Electrical, and Plumbing (MEP) requirements. The residential sector followed closely, with luxury developments seeing a 12.8% rise, while the mid-segment and affordable housing categories grew by 11.9% and 11.1%, respectively. In contrast, the office and hospitality sectors saw more moderate increases of approximately 7.0% and 6.5%, while general manufacturing remained the most stable with a modest 3.8% uptick.
Industry leaders suggest that these rising costs are now a strategic consideration rather than just a budgetary hurdle. Arvind Nandan, Managing Director of Research & Consulting at Savills India, noted the resilience of the market despite these pressures.
“India’s real estate sector continues to demonstrate resilience, supported by evolving investor expectations and sustained demand for high-quality, future-ready assets across segments. As development activity accelerates across office, residential, retail and industrial & logistics sectors, construction cost dynamics are becoming increasingly strategic. Input volatility and execution challenges are prompting developers to prioritise efficiency, sustainability, and robust planning as key differentiators in driving long-term value,” Nandan stated.
Beyond material costs, the report highlights a tightening labor market and volatile commodity prices as persistent challenges. Wages for construction labor rose by approximately 23% between 2020 and 2024, compounding the impact of fluctuating prices for steel, cement, and crude oil. These pressures are particularly evident in the hospitality sector, where the cost of development now averages Rs 1.36 crore per key. Megha Tuli of Hotelivate-Savills emphasized the need for disciplined financial management in this environment. “India’s hospitality sector continues to see strong operating performance, but development economics are becoming increasingly complex, making cost discipline critical to project viability. Through our collaboration with Savills, this report offers a cross-sector view of construction costs, highlighting that fit-outs, financing, and early design decisions are now key levers driving returns,” Tuli explained.
Looking ahead, the report suggests that the next phase of growth in Indian real estate will be defined by “smart” building rather than sheer volume. With the expansion of Global Capability Centres (GCCs) and a booming e-commerce sector driving demand for Grade-A spaces, developers are increasingly focused on tech-enabled and sustainable workspaces. The study concludes that early-stage planning and design optimization will be the essential tools for developers seeking to maintain project viability while meeting the heightened expectations of modern occupiers and investors.
