In the first State of Trade Survey for 2016 undertaken by Glenigan, Build UK members reported a 39% rise in all building costs over the past quarter.
In addition, 43% reported a rise in labour costs compared to the same period last year, while two thirds stated labour costs were higher than a year ago.
Overall, labour supply "remains a concern" for contractors, who cited difficulties in recruiting supervisors, managerial, professional and technical staff along with bricklayers and cladders.
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This is due to a low number of applicants with the required skills (53%), a lack of required experience (53%) and a lack of qualifications (48%).
However contractors still remain positive about future prospects with 27% expecting workloads to increase during the next quarter.
The majority of Build UK members in the industrial and commercial sectors also expect workloads to increase over the next 12 months.
Growth is anticipated to be slower however, with 26% of respondents expecting work volumes to decline, compared to 9% last quarter.
Build UK Chief Executive Suzannah Nichol MBE said: "There continue to be mixed messages in terms of growth, however industry intelligence shows increasing levels of activity over the last quarter. Employers are experiencing both rising material and labour costs as they head towards maximum capacity and this continues to highlight difficulties in recruiting appropriate skills at all levels.
"Build UK is leading the way on the war for talent with its members opening their projects up to the public during Open Doors week in June 2016 to attract the brightest talent to projects at both a local and national level."
(LM)
