Advice and Opinion

JHB ranks fourth in top forecasted construction cost increases

Africa Globe

New York, San Francisco, Zurich, Hong Kong and London top the league table of the most expensive places to build, according to results from the annual research conducted by professional services company Turner & Townsend. Johannesburg is ranked fourth among the top five forecasted construction cost increases.

In their International Construction Market Survey 2017, a major data-led study of construction costs in 43 global markets, it is reported that half of the world’s construction markets are suffering from skills shortages. Labour costs in leading markets have hit new highs, with construction workers in New York and Zurich paid nearly US$100 per hour.

According to the report, global construction costs are set to rise by 3.5 per cent in 2017, reflecting steady economic growth and increasing skills shortages in over half of the world’s markets.

In the light of rising costs and a growing skills crisis, the International Construction Market Survey 2017 (ICMS) calls for increased investment in innovative technologies, new construction methods and better use of data to boost productivity in the sector.

The report analyses input costs – such as labour and materials – and charts the average construction cost per square metre for commercial and residential projects in 43 markets around the world. To identify the most expensive places to build, the average build cost in USD of six different types of construction was assessed: apartment high rise, office block prestige, large warehouse distribution centre, general hospital, primary and secondary school, and shopping centre including mall.

New York has overtaken Zurich as the most expensive city in which to build, with an average cost of US$3 807 per sqm followed by San Francisco (US$3 549 per sqm) and Zurich (US$3 528 per sqm), then Hong Kong (US$3 487.82) and London (US$3 213.99).

London, which ranked third in 2016’s report, has fallen to fifth place behind Hong Kong, despite costs in the city soaring by 5 per cent over the last year.  The fall in ranking reflects the depreciation of the UK pound against the US dollar since the UK referendum on European Union membership in June 2016.

Fifty-eight per cent of cities assessed by the study are identified as ‘warm, hot or overheating’ – where the market is characterised by a high number of projects and intense competition for physical resources and labour that drives up prices. 

The number of cities considered to be hot in 2017 has almost doubled since last year and includes New York, Dublin, London, San Francisco, Tokyo, Amsterdam and Dar es Salaam.  Seattle and Bogota are identified by Turner & Townsend to be overheating markets with costs in these cities expected to rise by 5 and 4.4 per cent respectively.

The major exceptions to escalating costs are the commodity-reliant markets of Singapore, Muscat, Kuala Lumpur and Santiago, where the development market has cooled in light of falling global prices for raw materials.

South Africa and other developing countries

Among developing economies construction costs increased by an average of 5 percent over 2016, with cost inflation in Istanbul and Buenos Aires reaching 12 percent and 27 percent respectively.

Brazil, Russia and South Africa are towards the top of the list as a result of their relatively high rates of inflation of around 5-6 percent, which leads to pressure to increase wages and higher costs of materials and plant equipment.

Africa – construction costs set to rise

Here in South Africa, Johannesburg is ranked fourth among the top five forecasted construction cost increases by market, following behind Buenos Aires, Istanbul and Dublin. In Johannesburg, building costs per square metre average at US$848.3.

In the recently released report, against a global average of 3.7 percent, cost inflation in Johannesburg was 3.7 percent, Dar es Salaam in Tanzania 5 percent, Kampala in Uganda 4 percent, Kigali in Rwanda and Nairobi in Kenya 1 percent. Construction cost inflation for Johannesburg in 2017 is forecast at 7.5 percent, while Nairobi is reported to be the cheapest city surveyed in which to build.

Skills shortages continue to prevail across the world with over half (24) of the 43 markets analysed reporting labour shortages compared to 20 markets in 2016.

Extreme variations in the cost of labour between regions and skill levels are also prevalent with construction workers in Zurich and New York edging closer to US$100 per hour.  By comparison, workers in Africa and India typically receive hourly wages of US$1-3.

Comments Steve McGuckin, Global Managing Director – Real Estate, Turner & Townsend: “This year’s survey indicates a slowly warming global construction industry suffering from increasing labour shortages in an improving global economy”.

“As more markets report skills shortages than ever before in the history of this study, it is clear that construction is not doing nearly enough to tackle this issue, which in turn is contributing to higher costs”.

“Against this backdrop, there is an urgent need for contractors and clients in many markets to boost productivity – embracing innovative technologies and new methods of construction, as well as using data analytics and better programme management to unlock efficiencies.”