New Delhi, April 17 : Indiaâ??s construction market, currently valued at $685 billion in 2025, is projected to touch $1.2 trillion by 2034 at a CAGR of 6.9 per cent driven by sustained infrastructure investments and urban development, a report said on Friday.

The report from Savills India and Hotelivate said that demand for offices remains robust, driven by GCC expansion and occupier preference for Grade-A, sustainable workspaces. Construction costs rose by 6.4 per centâ??7.6 per cent, largely due to a sharp increase in mechanical, electrical, and plumbing costs.

â??Indiaâ??s real estate sector continues to demonstrate resilience, supported by evolving investor expectations and sustained demand for high-quality, future-ready assets across segments,â?? said Arvind Nandan, Managing Director, Research & Consulting, Savills India.

Input volatility and execution challenges are prompting developers to prioritise efficiency, sustainability, and robust planning as key differentiators in driving long-term value, he added.

Retail and residential segments lead the sharpest rise in construction costs, the report said, adding that costs increased between 3.8 per cent and 13.9 per cent across sectors from 2023â??2025.

Malls saw the highest surge in costs, driven by façade complexity, deeper basements, and higher mechanical, electrical, and plumbing costs.

Luxury residential segment surged 12.8 per cent, followed by the mid-segment (11.9 per cent) and affordable housing (11.1 per cent).

Residential demand remains resilient, with a clear shift towards premium, quality-led developments across urban markets, the report noted.

The report noted that volatility and wage inflation continue to impact project economics, adding that fluctuations in steel, cement, and crude oil prices remain key cost drivers. Construction labour wages have risen roughly 23 per cent from 2020 to 2024, significantly increasing overall costs.

Hospitality sector performance continues to improve, with occupancy stabilising at 67â??68 per cent and average room rates crossing Rs 9,000.

Investor confidence remains strong, with the pipeline exceeding 1.2 lakh keys and 50,000 keys signed in 2025, the report noted.

The report urged developers to balance cost efficiency with quality along with sustainability, and focus on early-stage planning, design optimisation, and capital allocation.

/IANS