Construction World July 2017

PROJECT DEVELOPMENT

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

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 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.”  materials and plant equipment. African costs set to rise

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. 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.

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CONSTRUCTION WORLD JULY 2017