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Wed June 23 2021

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Zurich tops list of most expensive places to build

1 Jun 16 Zurich and New York are the world’s most expensive places in which to build, closely followed by London.

At nearly US$3,700 per m2, average construction costs in Zurich are the highest in the world, closely followed by New York (US$3,650 per m2) and London (up 5.4% over the past year to US$3,550 per m2).

The research by Turner & Townsend finds that the international construction industry is heading in opposite directions, as some markets overheat while others suffer a sharp slowdown. A polarisation is developing between the overheating markets - overstretched by high demand and fierce competition - and those that are slumping because of an over-reliance on either China or the oil industry.

Booming markets like London, New York and Seattle report intense competition, rising costs and shrinking margins. At the other end of the scale, construction costs in Beijing have slumped by 10 percent amid weaker demand.

The latest annual International Construction Market Survey by Turner & Townsend gives a detailed snapshot of what’s happening in 38 construction markets around the world.

The International Construction Market Survey 2016 analyses input costs – such as labour and materials – and charts the average construction cost per m2 for both commercial and residential projects in the 38 markets.

The most expensive cities are being rapidly caught up by the tech hubs of San Francisco (US$3,400 per m2) and Seattle (US$2,800 per m2).

Turner & Townsend’s researchers warn the Seattle market is overheating, and predict that construction costs in the US city will rocket by a further 8 percent in the next 12 months.

Meanwhile average construction costs in San Francisco have already risen by 5% in the past year, and are forecast to continue increasing at the same rate this year.

At the other end of the inflationary 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. The report predicts that prices will remain stagnant in the Chinese capital over the next year.

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In a reflection of the weakness of demand in oil-reliant economies, the research also predicts zero cost inflation over the next 12 months for the United Arab Emirates and in the Omani city of Muscat.

The research also ranked the 38 markets according to current levels of construction activity. “Hotter” markets have a higher number of projects, and consequently there is less competition for tenders, which tends to drive up prices. The report predicts that activity levels will increase over the next year in nine of the markets, stay the same in 19, and fall in 10.

Seattle and New York are regarded as overheating; while Dublin, London, San Francisco and Kuala Lumpur are 'hot'. At the other end of the scale are Moscow and Sao Paulo - both regarded as 'cold'.

Turner & Townsend global managing director – real estate Steve McGuckin 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.

“In overstretched markets both contractors and their clients must take urgent action to improve efficiency and keep cost inflation in check, while those operating in subdued markets should seize the opportunity to strip out waste and get the skills mix right for when demand returns.

“While advances in technology like Building Information Modelling (BIM) and modular construction can help, efficiency improvements of the scale required will only be achieved if the industry evolves - and develops leaner, more collaborative ways of working across the supply chain.”

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