London is the third most expensive construction market in the world, according to new research.
The UK capital faces “intense competition, rising costs and shrinking margins”, along with New York and Zurich, the cities which come top of the study.
The International Construction Market Survey looked at construction costs in 38 global markets and was conducted by programme manager Turner & Townsend. It analysed input costs – such as labour and materials – and charts the average construction cost per sq m for both commercial and residential projects in 38 markets around the world.
At nearly $3,700 (£2,565) per sq m, average construction costs in Zurich are the highest in the world, closely followed by New York, with $3,650 (£2,530) per sq m. London costs are $3,550 (£2,460) per sq m.
These cities are being rapidly caught up by the tech hubs of San Francisco, where construction costs are $3,400 (£2,356) per sq m, and Seattle, where it costs $2,800 (£1,941) per sq m to build.
Turner & Townsend’s researchers warn that the construction market is “overheating” in two cities, New York and Seattle, while a further four were classed as “hot”: London, Dublin, San Francisco and Kuala Lumpur.
At the other end of the scale, Beijing’s construction costs tumbled by 10% in the year to April – an acceleration of a downward trend that saw costs fall by 5% in the year before. Costs are expected to remain stagnant over the next 12 month.
In a reflection of the weakness of demand in oil-reliant economies, the research also predicts zero cost inflation over the year ahead for the United Arab Emirates and in the Omani city of Muscat.
Steve McGuckin, global managing director for real estate at Turner & Townsend, said: “Two macro-economic factors – the sharp fall in oil prices and China’s slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market.
“Some regions are now facing acute overstretch, with construction demand outstripping what the industry is able to supply. Meanwhile, in markets with a heavy reliance on either trade with China or on commodities exports, both demand and levels of investment have fallen.
“However against this divergent backdrop, some challenges – and some solutions – are universal. Chief among the challenges is an endemic skills shortage, which risks driving up construction costs even in markets with weak demand.”
