The latest data from Portugal’s New Housing Construction Cost Index shows that construction costs remain on an upward trajectory, with June 2025 posting a 3.9% year-on-year increase — up from 3.6% in May.
For commercial real estate investors, this trend highlights the need to factor sustained labour cost growth and selective material price spikes into project planning. These cost dynamics could influence returns, timelines, and overall market positioning in the months ahead.
Labour-Driven Inflation
The primary driver of June’s construction cost growth was labour, which surged 7.3% year-on-year — a notable 0.5 percentage points above May’s growth rate. Labour costs contributed 3.4 percentage points to the overall Construction Cost Index rise, reinforcing the challenge for commercial real estate projects that rely heavily on skilled trades. Without early cost agreements or productivity gains, rising wages could erode development margins and extend project timelines.
Materials — A Volatile but Critical Factor
Materials posted a modest 1.0% increase, down slightly from May’s 1.1%. However, key inputs relevant to modern commercial real estate builds saw sharper swings:
- Significant rises: Glass and mirrors (+30%) and climate control equipment (+10%), both essential for high-spec office and retail spaces.
- Declines: Bitumen, wood and wood derivatives, and steel/iron pipes — all down around 10%, offering cost relief in certain industrial and logistics developments.
This divergence means commercial real estate investors need a granular understanding of their material exposure to accurately assess project risk.
Short-Term Dynamics
June’s month-on-month change of 0.4% reflects falling material prices (-0.3%) offset by continued labour growth (+1.2%). This pattern — stable to declining materials but persistently rising wages — is likely to remain a defining feature for the Portuguese commercial real estate market in the near term.
Strategic Implications for Investors
- Forward Budgeting: Assume above-inflation wage growth for 2025–2026 commercial real estate developments.
- Contract Negotiation: Explore fixed-price contracts or framework agreements to limit exposure to cost volatility.
- Project Timing: Where possible, phase developments to capitalise on temporary material price dips.
- Asset Class Sensitivity: High-spec office and retail developments may face more cost pressure than logistics or basic industrial builds.
Conclusion — Cost Management as a Competitive Edge
In Portugal’s current market, successful commercial real estate investment will hinge on the ability to control construction inputs while targeting sectors and locations capable of generating rental growth or yield compression that offsets inflationary pressures. With the cost curve pointing upward, proactive planning and disciplined execution are no longer optional — they’re the foundation of competitive advantage.
Explore smarter opportunities with Roca Estate — your trusted partner in navigating Portugal’s commercial real estate market with precision, insight, and strategic foresight.
