Construction Cost Inflation Era: Strategies to Reduce Factory Building Costs

Construction costs continue to rise. According to CBRE, global tariff impacts are estimated to increase construction material costs by 9% and total project costs by 4.6%. Construction cost escalation recorded 4.9% in 2023, still exceeding the pre-COVID level of 2-5%. Cushman & Wakefield also analyzes that electrical equipment delivery delays and EPA's new HVAC regulations are adding to cost pressures.

Korea faces a similar situation. According to the Construction & Economy Research Institute of Korea, construction investment is expected to decline by -9.5% in 2025 before rebounding 2.4% in 2026, but real purchasing power is further declining due to rising material prices. Prices have risen across the board from basic materials like rebar, cement, and ready-mixed concrete to electrical installations.

In this environment, strategies to optimize factory construction costs can be divided into three categories. First, controlling costs at the design stage. By applying VE (value engineering), reducing over-design, utilizing standard components, and shortening on-site construction periods through modular construction methods.

Second, material procurement strategy. In times of rising material prices, advance ordering and long-term contracts are effective. A strategy of monitoring price fluctuations of major materials and making advance purchases when prices are relatively low is necessary. For imported materials, foreign exchange risk must also be considered.

Third, maximizing government support. Of the KRW 44.313 trillion in SME policy funds for 2026, over 60% is prioritized for allocation to non-metropolitan companies. When introducing smart factories, 50% of project costs are supported, and Gyeongju City's SME working capital interest subsidies of KRW 261.6 billion are also available.

Permit costs are also an important component of construction costs. If permits are delayed, construction starts are postponed, and material costs may rise further during that time. Processing permits quickly is itself a construction cost reduction strategy. Thorough preparation through preliminary consultation and documentation to pass approval in one go is key to cost reduction.