UK regions to see construction costs soaring over next two years

The former steelworks site on Teesside - one of many regional projects in the pipeline in the UK.

Regions and cities across the UK are set to gain as London falls out of top five most expensive global construction markets. Major UK cities are set to see the cost of construction soar over the next two years, as labour shortages and ongoing disruption to global supply chains from Covid-19 are exacerbated by a government agenda focussing considerable investment outside of London and the south east.

The International Construction Market Survey, published today (21.7.21) by global professional services company Turner & Townsend, forecasts that rising prices being seen in the global construction sector will be sustained through 2022 and into 2023. Cost inflation in the UK is expected to rise to 4% by 2023 – exceeding forecasts for Europe, North America, Australasia, the Middle East and Asia.

London (£2,326 per sqm), which ranked third in 2019’s report, has fallen out of the top five in the global rankings to eighth place behind Geneva, Zurich, and Boston. But Bristol (16th), Birmingham (19th), Manchester (24th), Newcastle (29th) and Glasgow (30th) all place in the top thirty globally, with Edinburgh (32nd) and Leeds (33rd) close behind. All of these cities now rank as more expensive to build in than key global markets such as Paris and Singapore.

Tokyo is now the most expensive city in the world to build in, with an average cost of £2,906 per sqm, followed by Hong Kong (£2,828 per sqm) and San Francisco (£2,701 per sqm).  

Global cost increases are being driven by rising material costs and skilled labour shortages – both exacerbated in the UK by Brexit and the government’s ambitious programme of investment to ‘level up’ the economy after the pandemic.  The average hourly construction wage in London has now hit £37.3, above the UK average of £33.0.

Widespread disruption to global supply chains seen through the pandemic is also being sustained by high demand and competition for key materials between global markets including the US, Europe and China.  Globally, demand for steel, softwood and copper piping have seen prices rise sharply over the year, with increases of up to 40% seen in some international cities, including Birmingham.    

Neil Bullen, managing director of global real estate at Turner & Townsend, said pressure on the construction sector needed to be carefully managed to ensure projects are kept on track. “Capacity constraints around the availability of skilled labour and disruptions to the supply chain are already providing significant inflationary pressure and this is only going to be heightened in the coming months and years as we focus on building back better from the pandemic.

“It is more important now than ever that the industry embraces wholesale reform and invests in data, technology and improving productivity to help tackle costs and make savings where we can to remain competitive. This will complement the steps many businesses are already taking to diversify global supply chains and get closer to their suppliers – moving from a ‘just in time’ to ‘just in case’ approach to delivery.”

Click here to download the International Construction Market Survey 2021.

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