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Figure 1: Arcadis ranking of the most expensive cities in which to build.

New York is the world’s most expensive city to build in, according to the latest International Construction Costs report published by Arcadis. The high-density Asian cities of Hong Kong (second) and Macau (fifth) rank in the top five, along with Geneva (third) and London (fourth).

The 2017 edition of the annual International Construction Costs report details the relative cost of building in 44 of the world’s major cities across 13 building types, while outlining the significant product quality, supply chain, and cost differential factors (see Figure 1).

London has fallen two places since last year, largely due to the devaluation of the pound following the UK’s Brexit vote, making it less expensive compared with other cities. Shanghai, in 35th, and Manilla, 38th, suffer the biggest decreases overall, both dropping eight places. The highest climbers in the ranking of 44 cities are Auckland, which is up to 13th; Belgrade up to 30th; and Taipei, 40th, all of which rose four places compared with 2016.

“New York rises to the top globally once again due to a lack of real estate availability, accessibility issues, and high real estate prices,” said David Hudd, Arcadis cost and commercial director. “To build in such a dense urban environment like NYC, you must find solutions to control costs, such as expertly handling storage, transport, and staging of building materials; identifying skilled construction firms and labor far in advance; and implementing modularized construction.”

New York construction shows no signs of slowing down. The trend for the Big Apple to remain the most expensive for construction is likely to continue into 2017 and beyond as large-scale construction projects and international investors drive development. New York is almost 50 percent more expensive in construction costs than the national average in the U.S., and more than 20 percent greater than other major cities such as Chicago, Los Angeles, Seattle, or Boston.

San Francisco is the second most expensive city for hard construction costs because of its equally cramped environment, the rigorous seismic requirements, and competition for contractors. Meanwhile, Houston is a bargain, relatively speaking, as the city’s hard construction costs are currently 10 percent below the national average.

U.S. construction output growth is expected to increase at around 3 percent per year, driven by the housing market, recovery of large metropolitan areas, and continued investment in manufacturing as the pace of reintroducing domestic manufacturing accelerates, especially in light of proposals of the new U.S. administration. Housing continues to be a bright sector but, with build rates remaining 30 percent below the pre-crisis peak, there should be potential for further growth.

Regional construction cost differences

Asia — The effects of China’s continuing transition away from an investment-driven economy are having an impact on construction costs. In some cases, real estate markets are suffering from oversupply, which is exacerbated by a slowdown in demand from Chinese tourists and commercial occupiers. Looking forward, demand is expected to be tied into large-scale investment in energy and transport infrastructure such as the One Belt One Road project.

South America — Brazil faces a tough future, although it is hoped that new fiscal measures introduced by the government to return the economy to growth will lead to a recovery in demand from the commercial and private residential sectors. However, prospects for investment in resource industries remain poor given continuing conditions of oversupply.

Australia Pacific — Construction in Australia continues to be impacted by a big overhang caused by the slowdown in commodity markets, but infrastructure and housing markets remain strong in New South Wales and Victoria, in particular. Prospects for growth are closely aligned to an ambitious AUS $184 billion transport infrastructure plan focused on rail and motorway construction.

Europe — There are significant cost differences within the Eurozone for construction, with costs in Lisbon and Athens still at an almost 50 percent discount to Paris, for example. Risks in forecasting the European market’s performance include Brexit and the upcoming elections in a number of EU countries. In London, development activity in infrastructure is strong, but key commercial sectors including offices and prime residential have seen a slowdown due to Brexit uncertainty.

Middle East — Doha and Dubai continue to invest in development as the FIFA World Cup 2022 and Expo 2020 approach. Other cities have seen a stall or decline due to reduced public spending in light of lower oil prices.

Methodology

The comparative cost assessment of 44 cities is based on a survey of constructions costs undertaken by Arcadis covering 13 building types. Costs are representative of the local specification used to meet market needs. The building solutions adopted in each location are broadly similar and, as a result, the cost differential reported represents differences in specification as well as the cost of labor and materials. Construction costs are current as of Q4 2016.


Information provided by Arcadis (www.arcadis.com).

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