How does Australia compare globally in costs for construction?

A new report published by asset design and consultancy firm, Arcadis, has found Melbourne is the 14th most expensive city in the world to build in, with New York in the US taking first place.

cover-photo2The International Construction Cost report found the high-density Asian cities of Hong Kong (second) and Macau (fifth) feature in the top five, along with European cities Geneva (third) and London (fourth).

The report focused on Melbourne to represent Australian cities, which increased its position from 15th in 2016 largely due to the prolonged impact of the slowdown in commodity markets and fluctuations in global currencies.

Gareth Robbins, Director Built Asset Consultancy, Arcadis Australia Pacific, said, “Despite a strong pipeline of infrastructure projects in Victoria and across the country, Melbourne still sits in the top third of the most expensive cities to build in globally.

“Construction costs remain high in part due to Australia’s geographic isolation. Compared to Europe and the Americas, there is far less private sector competition to complete construction work and these companies import a large proportion of construction materials, which can fluctuate in price due to the Australian dollar and taxes.

“Despite the cost, Melbourne has a strong plan for construction across rail, road widening projects and new buildings underway.”

At a global level, London has fallen two places since 2016, largely due to the devaluation of the pound following the UK’s Brexit vote, making it less expensive compared to other cities.

Shanghai (35th) and Manilla (38th) experienced the biggest drop overall, both dropping eight places. The highest climbers in the ranking are Auckland (13th), Belgrade (30th) and Taipei (40th), all of which rose four places compared to 2016.

“High density cities like New York and Hong Kong are particularly high cost locations to build due to constraints with land availability, accessibility and land values. Despite this they continue to prosper and see significant development activity thanks to their attractiveness as desirable global cities for commerce and people,” Mr Robbins said.

“The cost of building critical infrastructure and new buildings over the course of a long build phase is notoriously difficult to predict, making the challenge of providing as much cost and commercial certainty as possible a vital one.”

The top ten most expensive cities to build in are outlined below, with changes from 2016 in brackets.

  1. New York (-)
  1. Hong Kong (+1)
  1. Geneva (+1)
  1. London (-2)
  1. Macau (-)
  1. Copenhagen (-)
  1. Stockholm (-)
  1. Frankfurt (-)
  1. Paris (-)
  1. Vienna (+1)

Regional construction cost differences

Asia

The effects of China’s continuing transition away from an investment driven economy are having an impact on Asian markets that have previously seen Chinese inward investment. In some cases, real estate markets are suffering from oversupply which is exacerbated by a slowdown in demand from Chinese tourists and commercial occupiers.

Growth rates in many Asian construction markets have reduced significantly over the past 18 months as commercial and residential development rates have peaked.

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.

Americas

US construction output growth is expected to increase at around three per cent per year, driven by the housing market, the recovery of large metropolitan areas and continuing investment in manufacturing as the pace of reintroducing domestic manufacturing accelerates, especially in line with the policy of the new administration.

Housing continues to be a bright sector but with build rates remaining 30 per cent below the pre-crisis peak, there should be potential for further growth. Infrastructure is also billed as being a major focus, which is likely to drive continued cost pressures within the sector.

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 markets in Australia continue 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 $184 billion transport infrastructure plan focused on rail and motorway construction, though some of this relies on developer contributions, user payments and political commitment.

Europe

There are significant cost differences within the Eurozone for construction, with costs in Lisbon and Athens still almost 50 per cent less than Paris, for example. Risks in forecasting the European market’s performance include Brexit and the upcoming elections in a number of EU countries. However, there is strong activity within infrastructure which will continue to drive costs due to rising demand for labour and materials.

In London, development activity in infrastructure is strong, but key commercial sectors, including offices and prime residential have seen a slowdown due to Brexit related uncertainty impacting some developers’ investment decisions.

Middle East

Doha and Dubai continue to invest in development as the Fifa World Cup 2022 and Expo20 approach. Other cities have seen a stall or decline due to reduced public spending in light of the lower oil prices.

This partner content is brought to you by Arcadis. For more information, visit https://www.arcadis.com/en/global/our-perspectives/international-construction-costs-2017/.

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