London has dropped to second place from first as the most expensive city in the world to build in, as Geneva took the top spot, according to a report by Arcadis.
The International Construction Costs report covers, which covers 100 cities, ranked New York third, followed by San Francisco.
Other cities in the global top 20 included Bristol, Manchester, Dublin and Birmingham. Of the remaining UK and Ireland cities in its report, Edinburgh and Glasgow were in the top 25, followed by Belfast, which ranked 38th.
Last year, London was ranked as the most expensive city for construction in the world, followed by Geneva and Oslo.
ESG standards drive UK pricing
The report said that although material price inflation reached 30% in the middle of the year, the UK construction market remained resilient in 2022, buoyed by housing, industrial and infrastructure growth.
Arcadis said material price inflation looks on track to fall to 6% by mid-2023 but that labour shortages will continue to bite, with a “market slowdown looming and challenges ahead for many in the sector”.
Researchers said improved building standards and low-carbon building design were significant factors for construction pricing in the UK, reflecting the European market.
Short-term cost uplifts associated with upgraded specifications in the UK and Europe ranged from 5-7% for new homes and 7-10% for commercial buildings.
Rising demand for sustainable buildings in prime locations was another underlined factor, with researchers pointing to a “green premium” when valuing sustainable assets.
Inflation drives cost increases
Many of the top 10 most expensive cities remained unchanged from last year, including hotspots such as Munich, Copenhagen, and Zurich, as high inflation continues to affect most cities.
Arcadis researchers said European market costs were affected by the invasion of Ukraine in 2022, with the resulting disruption to local manufacturing supply chains and regional-specific energy markets adding 5-6% to the region’s inflation.
Half of the top 10 were cities with dollar-denominated currencies, including Hong Kong, Boston, and Philadelphia being new entrants, on the back of dollar appreciation and the ongoing impact of local inflation.
UK remains “really good place” to invest
Simon Rawlinson, head of research and strategic insight at Arcadis, said: “Inflation in the UK exceeded 10% during 2022, the highest level seen for decades.
“Despite market turbulence triggered by the Ukraine war and rapidly rising interest rates, demand for construction in the UK remained strong throughout 2022. We anticipate a small contraction in 2023 as residential markets slow in response to higher interest rates.”
Peter Hogg, UK cities director at Arcadis, said: “Despite the relatively high construction costs seen over the year, the UK – and the London market in particular – remain really good places to invest and construct, offering the potential for strong long-term returns for investors. Competitive sustainability credentials make our capital a desirable city and continue to attract talent from across the globe.”
Most expensive cities across the UK and Ireland:
- London
- Bristol
- Manchester
- Dublin
- Birmingham
- Edinburgh
- Glasgow
- Belfast
Most expensive cities globally:
- Geneva
- London
- New York
- San Francisco
- Munich
- Zurich
- Copenhagen
- Hong Kong
- Boston
- Philadelphia
- Macau
- Oslo
- Bristol
- Seattle
- Manchester
- Dublin
- Birmingham
- Los Angeles
- Tokyo
- Las Vegas
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