London remains the second most expensive city in the world in which to build, but it is experiencing a severe construction market imbalance, an analysis of the cost of construction has found.
Along with the most expensive and third most expensive cities – New York and Hong Kong – the UK capital can command up to 60% more in construction costs than many European locations, as a result of strong currencies and significant restraints on resources, according to the International Construction Costs Index.
However, contractors’ capacity in London is failing to keep pace with demand and a combination of limited bidding resources and supplier opportunism is driving cost inflation, the report from design firm Arcadis found.
It has become “near-impossible” to accurately predict prices in some areas of the market due to rapid inflation affecting labour costs.
In addition, there are signs that supply chain insolvencies are on the rise in London, with cash-flow failures, problem projects and lack of control over the supply chain becoming ever more prevalent issues. These factors conspire to reduce the certainty of delivery, the report stated.
Bangkok in Thailand, Bangalore in India and Taipei in Taiwan were ranked the least expensive out of the 44 major cities for the relative cost of construction.
All construction markets were affected by falling commodity prices with the overall level of cost inflation restricted. In particular, growing uncertainty about oil prices is expected to have a long-term impact on the global construction industry, especially in the Middle East, the report found. However, low labour costs in Dubai and Doha have stabilised these regions.
Elsewhere, the gradual recovery in the Eurozone has meant that none of the high construction prices seen in the UK or US has affected development across continental Europe. In Asia, the Chinese economic slowdown and weakening demand in many cities has meant that growth in wider Asian markets is expected to ease in 2016.
“As we enter 2016, the trend of 40% of international real estate investment being in the Americas, looks set to continue,” said Kevin Herron, director of cost consulting at Arcadis.
“The impacts of the Chinese economic slowdown will need to be monitored, as this has potential to both increase and decrease investment into the US, while at the same time continuing the downward pressure on commodities pricing. Global investors and developers should be in close communication with their advisors to keep abreast of market developments and opportunities.”
Five most expensive
1. New York, US
2. London, UK
3. Hong Kong, China
4. Geneva, Switzerland
5. Macau, China
1. Taipei, Taiwan
2. Bangalore, India
3. Bangkok, Thailand
4. Kuala Lumpur, Malaysia
5. Ho Chi Minh, Vietnam