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Tue March 19 2024

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London construction costs hit new heights

15 Jan 15 It now costs more to build in central London than anywhere else in the world.

The average cost of construction in central London is now higher than Switzerland, the most expensive country in the world to build, according to the 2014 International Construction Costs Report.

The annual study by construction consultant Arcadis benchmarks building costs in 43 countries. The strength of sterling relative to the euro and accelerating price inflation have seen the cost of building in the UK overall increase significantly, while the continuing devaluation of the yen has led to the relative cost of building in Japan drop below that of the USA.

Central London ranks top in the relative cost league, reflecting high specification levels seen in many London developments and the fact that the UK construction industry has never been as productive as in the USA and mainland Europe, with legal frameworks and capability to deliver the schemes causing major delays, Arcadis said.

There has been significant cost inflation in London over the past year, Arcadis said, because of an acceleration of client demand in assets such as prime residential, which are reaching a capacity ceiling.

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While established high-cost locations Switzerland and Denmark have held their places at the top of the cost league, European countries dominate the top 10. This is due, in part, to a degree of economic recovery, which is gradually translating into contractors putting up their prices. Elsewhere, currency devaluation in many emerging markets means that relative costs have dropped considerably in these areas. Costs in India, Indonesia, Malaysia, Thailand and Vietnam are now around 35% less than that of the UK.

Arcadis head of strategic research Simon Rawlinson said: “The cost of construction in London has been heavily impacted by high specification levels in many of the city’s developments, topped off by the fact that its prime residential property is reaching a capacity ceiling, leading to significant cost inflation over the past year. This is bolstered by the UK construction industry being much less productive than its US and European peers and the fluctuation in global currencies, especially the strength of the Sterling relative to the Euro. Given that this is unlikely to cease, the UK is forecast to grow around three per cent in 2015.

“Extending beyond the UK, growing economic stability in parts of the Eurozone has led to European nations dominating the top 10 for building costs. This is at the expense of some Asian states such as Singapore, Macau and Japan, where currency devaluations have seen them drop down the rankings. Japan, in particular, has seen the relative cost of construction fall considerably over the last year and the market is now more competitive than that of the United States.”

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