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CONSTRUCTION WORLD
JULY
2017
14
PROJECT DEVELOPMENT
In their
International Construction Market Survey 2017
, a data-led study
of construction costs in 43 global markets, it is reported that half of
the world’s construction markets are suffering from skills shortages.
Labour costs in leading markets have hit new highs, with construction
workers in New York and Zurich paid nearly USD100 per hour.
According to the report, global construction costs are set to
rise by 3,5 per cent in 2017, reflecting steady economic growth and
increasing skills shortages in over half of the world’s markets.
In the light of rising costs and a growing skills crisis, the
International Construction Market Survey 2017 (ICMS) calls for
increased investment in innovative technologies, new construction
methods and better use of data to boost productivity in the sector.
The report analyses input costs – such as labour and materials
– and charts the average construction cost per square metre for
commercial and residential projects in 43 markets around the world.
To identify the most expensive places to build, the average build
cost in USD of six different types of construction was assessed:
apartment high rise, office block prestige, large warehouse
distribution centre, general hospital, primary and secondary school,
and shopping centre including mall.
New York has overtaken Zurich as the most expensive city in
which to build, with an average cost of USD3 807 per m
2
followed by
San Francisco (USD3 549 per m
2
) and Zurich (USD3 528 per m
2
),
then Hong Kong (USD3 487,82) and London (USD 213,99).
London, which ranked third in 2016’s report, has fallen to fifth
place behind Hong Kong, despite costs in the city soaring by 5 per
cent over the last year. The fall in ranking reflects the depreciation
of the UK pound against the US dollar since the UK referendum on
European Union membership in June 2016.
Global construction
COSTS RISE
New York, San Francisco, Zurich, Hong Kong and
London top the league table of the most expensive
places to build, according to results from the
annual research conducted by professional services
company Turner & Townsend. Johannesburg
is ranked fourth among the top five forecasted
construction cost increases.
About the International Construction Market Survey
Compiling data from Turner & Townsend teams in 43 global markets,
the ICMS gives an in-depth snapshot of construction costs – and what’s
driving them – around the world.
It measures average input costs and calculates the average cost
per m
2
of building a range of construction projects, including high-rise
apartments, city centre offices, hospitals, schools, warehouses and
shopping malls.
All local construction costs have been converted into US dollars
to allow accurate cost comparisons to be made between construction
markets in widely diverse economies. The report also uses the Purchasing
Power Parity methodology to determine the relative value of different
currencies, and location factor approach, which takes into account factors
such as labour productivity, market heat and tender margins.
Fifty-eight per cent of cities assessed by the study are identified
as ‘warm, hot or overheating’ – where the market is characterised
by a high number of projects and intense competition for physical
resources and labour that drives up prices.
The number of cities considered to be hot in 2017 has almost
doubled since last year and includes New York, Dublin, London,
San Francisco, Tokyo, Amsterdam and Dar es Salaam. Seattle
and Bogota are identified by Turner & Townsend to be overheating
markets with costs in these cities expected to rise by 5 and 4.4 per
cent respectively.
The major exceptions to escalating costs are the commodity-
reliant markets of Singapore, Muscat, Kuala Lumpur and Santiago,
where the development market has cooled in light of falling global
prices for raw materials.
Developing countries
Among developing economies construction costs increased by an
average of 5 percent over 2016, with cost inflation in Istanbul and
Buenos Aires reaching 12 percent and 27 percent respectively.
Brazil, Russia and South Africa are towards the top of the list as a
result of their relatively high rates of inflation of around 5-6 percent,
which leads to pressure to increase wages and higher costs of
materials and plant equipment.
African costs set to rise
Here in South Africa, Johannesburg is ranked fourth among the top
five forecasted construction cost increases by market, following
behind Buenos Aires, Istanbul and Dublin. In Johannesburg, building
costs per square metre average at USD848,3.
In the report, against a global average of 3,7 percent, cost
inflation in Johannesburg was 3,7 percent, Dar es Salaam in
Tanzania 5 percent, Kampala in Uganda 4 percent, Kigali in Rwanda
and Nairobi in Kenya 1 percent. Construction cost inflation for
Johannesburg in 2017 is forecast at 7,5 percent, while Nairobi is
reported to be the cheapest city surveyed in which to build.
Skills shortages continue to prevail across the world with over
half (24) of the 43 markets analysed reporting labour shortages
compared to 20 markets in 2016.
Extreme variations in the cost of labour between regions and skill
levels are also prevalent with construction workers in Zurich and
New York edging closer to USD100 per hour.
By comparison, workers in Africa and India typically receive
hourly wages of USD1-3.
Comments Steve McGuckin, global managing director – real
estate, Turner & Townsend: “This year’s survey indicates a slowly
warming global construction industry suffering from increasing
labour shortages in an improving global economy.
“As more markets report skills shortages than ever before in the
history of this study, it is clear that construction is not doing nearly
enough to tackle this issue, which is contributing to higher costs.
Accordingly, there is an urgent need for contractors and clients in
many markets to boost productivity – embracing innovative technol-
ogies and new methods of construction, and using data analytics and
better programme management to unlock efficiencies.”