Construction Costs In London Are Rising, But Manchester Is Catching Up

According to Turner & Townsend research, rising demand for infrastructure work, combined with a global skills shortage, is driving up the cost of construction projects in London.

According to the International Construction Market Survey 2017, costs are expected to rise 4.1 percent in 2017. (ICMS). Increased investment in innovative technologies, new construction methods, and better data use are recommended in the report in order to manage costs and boost productivity in the sector.

The report examines input costs such as labour and materials, as well as the average construction cost per m2 for commercial and residential projects in 43 global markets.

London, which ranked third in the 2016 report, has dropped to fifth place, trailing Hong Kong and San Francisco, despite rising by 5% in the last year to US$3,214 per m2. The drop in ranking reflects the UK pound’s depreciation against the US dollar since the EU referendum.

Meanwhile, 60 percent of the cities studied are classified as ‘warm, hot, or overheating,’ indicating that the market is characterised by a high number of projects and intense competition for physical resources and labour, which drives up prices.

While London is considered a ‘hot’ market, there are signs that the traditional north-south divide in UK construction costs is beginning to close. The north of England’s construction market is one of only 14 worldwide expected to warm in 2017, with the region set to experience the highest construction cost price inflation in the UK outside of London – at 3.6 percent – this year, up from 2.9 percent in 2016.

According to the report, construction price inflation in southern and central England will fall from 3.5 percent to 2 percent and from 3.8 percent to 3.5 percent, respectively.

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With an average cost of US$3,807 per m2, New York has surpassed Zurich as the most expensive city in which to build, followed by San Francisco (US$3,549 per m2) and Zurich (US$3,528 per m2).

International construction costs are expected to rise by 3.5 percent in 2017. The commodity-reliant markets of Singapore, Muscat, Kuala Lumpur, and Santiago are notable exceptions to rising costs, with the development market cooling in response to falling global raw material prices.

“This year’s survey shows a slowly warming construction industry suffering from increasing labour shortages in an improving global economy,” said Steve McGuckin, global managing director for real estate at Turner & Townsend.

“While London has long been the engine room of the UK construction industry, the market in northern cities is beginning to heat up.” The depreciation of the pound has alerted foreign investors to the opportunities in many other UK regions, with Manchester emerging as the most appealing alternative to the capital – as evidenced by the massive volume of high rise schemes and residential activity.”

Skill shortages persist around the world, with more than half (24) of the 43 markets studied reporting labour shortages, up from 20 markets in 2016.

Extreme” differences in labour costs between regions and skill levels are also common, with construction workers in Zurich and New York earning close to US$100 per hour. In comparison, workers in the UK in the sector typically earn around US$ 41.10 per hour.

“As more markets report skills shortages than ever before in the history of this study,” McGuckin continued, “it is clear that construction is not doing nearly enough to address this issue, which if not addressed has the potential to become a crisis.”

“Against this backdrop, the UK construction industry must increase productivity.” To increase output, contractors and clients must embrace innovative technologies and new construction methods, as well as use data analytics and better programme management.”

“The reports that London is the world’s fifth most expensive city for construction is cause for concern at a time when housing needs are so high,” said Shraga Stern, director of Decorean, one of the largest construction contractors operating in and around London. This report should serve as a wake-up call to the construction industry, which must work together to find innovative solutions to the problem. As a home builder, we are constantly looking for ways to reduce overall construction costs through the use of innovative technologies such as Building Information Modeling (BIM).”

Last Updated on December 28, 2021

Indra-Gupta

Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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