European construction markets are experiencing a remarkable transformation as costs stabilise and a massive wave of defence and industrial investment reshapes the continent's building landscape. The latest Global Construction Market Intelligence report from Turner & Townsend reveals that construction cost inflation across the European Union and Switzerland is projected to decrease from 2.9% in 2024 to 2.4% in 2025, signalling a sector that has emerged more resilient from recent global disruptions.
Switzerland maintains its position as Europe's most expensive construction market, with Zurich and Geneva both averaging €4,978 per m², placing them third and fourth globally behind New York City (€5,309 per m²) and San Francisco (€5,087 per m²). This premium positioning reflects the country's robust economic fundamentals and continued appeal for high-value developments. Dublin ranks fourth in European markets at €3,692 per m², driven by sustained commercial and data centre investment, whilst German industrial hubs Munich and Frankfurt follow at €3,575 and €3,400 per m² respectively.
The sector's outlook has been dramatically transformed by European NATO allies' commitment in June to invest 5% of GDP in defence, creating an unprecedented construction pipeline spanning advanced manufacturing, housing, and infrastructure. This massive capital injection, targeting key industrial heartlands in Germany, France, and Italy, represents a fundamental shift that could dwarf traditional real estate cycles. For investors and developers, this defence-driven demand offers a rare opportunity to tap into government-backed, long-term construction programmes with guaranteed funding streams, particularly in specialised manufacturing facilities and secure infrastructure projects.
However, critical supply chain constraints threaten to derail this growth potential. The report reveals that 100% of European markets report insufficient mechanical, engineering and plumbing labour supply, whilst vital data centre components like switch gears face lead times exceeding 41 weeks in markets such as Zurich and Geneva. Switzerland's hourly wage of €109 represents the second-highest globally, intensifying cost pressures across the region.
"Europe's bounce back following geopolitical and global economic setbacks in recent years is encouraging. The continent is learning lessons in improving its resilience and self-sufficiency, putting it in a stronger position to withstand new potential disruption from increased uncertainty posed by international tariffs and a changing global order," said Martin Londra, head of real estate and major programmes, Europe, at Turner & Townsend.
The convergence of cooling inflation, massive defence investment, and booming digital infrastructure demand creates a unique investment landscape. However, success will depend on addressing supply chain vulnerabilities through strategic nearshoring and regional partnerships. As the sector adapts to this new reality, early movers who can navigate labour shortages and component delays will be best positioned to capitalise on Europe's construction renaissance.
People mentioned:
- Martin Londra - Head of real estate and major programmes, Europe, Turner & Townsend
Companies mentioned:
- Turner & Townsend - Global professional services company specialising in construction cost management and project services
- CBRE Group, Inc. - The World's largest commercial real estate services and investment firm, majority owner of Turner & Townsend
- Camargue - Public relations agency
- European Central Bank - Central banking system of the European Union
- NATO - North Atlantic Treaty Organisation
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