Diverging fortunes for global markets

Some markets in the global construction industry are overheating while others are suffering a slowdown if they are over-reliant on China, according to research by programme managers Turner & Townsend.

It said it saw markets diverging as they were buffeted by opposing forces – overstretch in booming economies and downturn in markets that rely on commodity exports or trade with China.

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 38 markets around the world.

At nearly $3,700 (€3,261) per m², average construction costs in Zurich, Switzerland, were found to be the highest in the world, closely followed by New York, US, at $3,650 (€3,217) and London, UK, at $3,550 (€3,129).

However, Turner & Townsend said that these cities were rapidly being caught up by the tech hubs of San Francisco, US, with a figure of $3,400 (€2,997) and Seattle, US at $2,800 (€2,467).

Turner & Townsend’s researchers warned that the Seattle market was overheating, and predicted that construction costs there would rocket by a further 8% in the next 12 months.

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

At the other end of the inflationary scale, Turner & Townsend said that construction costs in Beijing, China, had 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 predicted that prices would remain stagnant in the Chinese capital over the next year.

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

The 38 markets studied according to current levels of construction activity were ranked, as overheating, hot, warm, lukewarm or cold. It said hotter markets had a higher number of projects, and consequently there was less competition for tenders, which tended to drive up prices. The report predicted that activity levels would increase over the next year in nine of the markets, stay the same in 19, and fall in 10.

With Seattle and New York overheating, the hot category featured Dublin, Ireland; London, UK; San Francisco and Malaysian capital Kuala Lumpur.

The two cities in the cold category were Moscow, Russia; and São Paulo, Brazil.

Polarisation

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

“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.”

He said, “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.”

He added that while advances in technology like building information modelling (BIM) and modular construction could help, efficiency improvements of the scale required would only be achieved if the industry evolved, “and developed leaner, more collaborative ways of working across the supply chain”.