London remains fifth most expensive city to build in, report says

Despite construction costs in London set to rise by 2.8% in 2018, the UK capital remains the fifth most expensive city to build in, behind the likes of New York, San Francisco, Hong Kong and Zurich.

This is according to a new report published by the consultancy firm Turner & Townsend. Its International Construction Market Survey found that construction costs in London are set to ease in 2018 with the 2.8% rise this year comparing favourably to the 3.9% increase in 2017. Furthermore, the study found that London is the most expensive place to secure construction workers with labour costs rising by 3.1% across the whole of the UK. The report revealed workers cost an average of £27.90 per hour in the UK and £34 per hour in the capital.

A key factor behind the ongoing increase in building costs is attributed to an acute skills shortage “being a major force behind cost escalation”.  The five top cities within the report have seen labour rates rocket by 10% in the last year, with New York construction workers commanding an average cost of labour of $98.30 per hour.

There are also signs that devolution is supporting investment hot spots by driving spending on infrastructure and housing.  A flurry of developer activity in key cities including Manchester and Birmingham – especially on the back of High Speed 2 in Birmingham – is contributing to rising construction costs across both regions, the firm identifies.

Commenting on the report, Steve McGuckin, global head of client programmes at Turner & Townsend, said: “We need a fundamental shake up of the industry model to incentivise this investment, otherwise there is every excuse not to change.  Projects need to be set up to deliver better performance from the construction supply chain – rewarding innovation in methods and materials which ensure better outcomes for the communities we build for.”

Average cost of construction in top five more expensive cities for 2018:

• New York: US$3,900 per m2 (£2,787)   
• San Francisco - US$3,737 per m2 (£2,670)
• Hong Kong - US$3,704 m2 (£2,640)
• Zurich - US$3,652 m2 (£2,752)
• London - US$3,618 m2 (£2,677)

Globally, construction costs are predicted to rise 4.3% this year according to Turner & Townsend with 46% of markets surveyed in the study containing a large number of projects that are pushing up prices. The trend of higher construction costs has been offset only by Perth, Australia, and Muscat in Oman, where prices fell by 1% in 2017. 

McGuckin believes that fundamental changes are needed to the UK and global industry model to control costs.

He added: “Global GDP growth of 3.9% is driving a resurgence in construction activity across international markets.  While this uptick will inevitably push up costs, inflation is being exacerbated by skills shortages: put simply, we need to do more work with fewer workers. In the UK the skills challenge continues to contribute to cost inflation.  We need to adopt digital tools, modern manufacturing methods and automation if we are to ease the pressure on resources and help attract new talent to our dynamic sector.”

To view the report in full, click here.