Construction costs in London are set to rise by 4.1% in 2017, fuelled by strong demand for infrastructure work and skills shortages in the UK, according to research by Turner & Townsend.
Key facts
- 3.7% global construction cost inflation in 2016
- 24 out of 43 markets suffering skills shortage in 2016
- 1% construction annual productivity increase over 20 years
- Seven markets are identified as hot and two markets as overheating
- 58% of markets are overheating, hot or warm
Turner & Townsend’s International Construction Market Survey 2017 analyses input costs – such as labour and materials – and charts the average construction cost per sq m for commercial and residential projects in 43 markets around the world.
London has fallen to fifth place from third last year, despite costs rising by 5% to reach $3,214 (£2,494) per sq m. This is due to the devaluation of the pound since the EU referendum.
Some 60% of cities in the study are identified as warm, hot or overheating, where the market is characterised by a high number of projects and competition for physical resources and labour driving up prices.
The survey shows a closing gap between the north and south of the UK. The construction market in the north of England is one of only 14 worldwide expected to grow warmer in 2017, with the region set to experience the highest construction cost price inflation in the UK outside of London, at 3.6%.
Globally, New York has overtaken Zurich as the most expensive city in which to build, at an average cost of $3,807 per sq m, followed by San Francisco at $3,549 per sq m.
Internationally, costs are set to increase by 3.5% in 2017. 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.
Steve McGuckin, global managing director, real estate at Turner & Townsend, said: “This year’s survey indicates a slowly warming construction industry suffering from increasing labour shortages in an improving global economy.
“London has long been the engine room of the UK construction industry, but the market in northern cities is starting to pick up steam. The devaluation of sterling has woken foreign investment up to the opportunities in many other UK regions, and Manchester in particular has emerged as the most attractive alternative to the capital – as can be evidenced in the huge volume of high rise schemes and residential activity.”
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