The world's most expensive cities for construction | infrastructure projects

20 March 2017 Consultancy.uk

New York remains the most expensive city in the world for construction and building projects, followed by Hong Kong and Geneva. London has dropped a few places, largely due to the uncertainty left by Brexit, a skills shortage and the pound's depreciation. Going forward, global uncertainty from major events clouds the accuracy of predictions – although continued low commodity prices and depreciating currencies are likely to spur investments.

Arcadis has released its latest analysis of the cost of construction in 44 of the world’s largest cities, in a report titled ‘International Construction Cost 2017: Cost Certainty in an Uncertain World’. The study considers 13 building types and maps the construction costs in a standardised current to which all other currencies are converted – although not on a purchase power parity basis. The analysis plots the high end and low end of a city’s cost profile.

Top 20 most expensive cities in which to build

New York remains, by a wide margin, the most expensive city for construction projects, even while it continues to attract high-levels of interest from developers, largely due to limited space and the city’s culture. Hong Kong takes the number two spot, due in part to labour shortages, with costs in the city almost in a league of their own compared to the next most expensive city, Geneva.

London has seen its ranking drop two spots to number four, largely due to the depreciation of the pound, even while inflation has seen costs rise – aside from uncertainty related to the consequences of Brexit on the market, the industry too will find itself needing to deal with a labour shortage. The next five cities have remained in the same spot as the previous report, Macau on 5 and Copenhagen on 6, Stockholm 7th, followed by Frankfurt and Paris – most of these cities have relatively similar cost profiles. Vienna rounds off the top ten.

Auckland, the city of sails, continues to see property prices climb, while the price of building has come down in Singapore. Amsterdam has seen its placement increase slightly, as a boom has hit its city centre skyline and corporate district (the 'Zuidas').

24 most expensive cities in which to build

The top forty is closed by Bengaluru, with a relatively low cost profile compared to the 43rd on the list, Kuala Lumpur. Southern European cities, including Athens and Madrid come in at 32 and 23 respectively. The research finds that a relatively close construction cost profile exists for cities between Ankara and Shanghai – with most of the cities in the group seeing the cost of construction increase slightly.

Explaining the differences in cost profile of the cities, Edel Christie, the Global Solutions Leader at Arcadisremarks, “World cities, including London and New York, continue to be some of the most expensive locations in the world to build. However, a slowdown in the rate of global growth, led by China and the resource economies, such as Brazil and Saudi Arabia, points to wider changes affecting the world’s construction markets.”

World commodity prices 2005 until 2021

The authors also considered the effect of key commodities on the longer-term cost development of the construction industry. One key factor, noted by the research, is that the current period is inherently uncertain – large scale global events, from the unknowns related to Brexit and the strategy, or lack thereof, of new administration in the US, to unpredictable changes in demand from India and China as their economies, means that projections bear considerable uncertainty.

The firm’s analysis however, points to a relatively stable picture across the key commodity profiles going forward, with the prices of iron ore, copper, oil and aluminium likely to stay at similar levels seen since the commodity crash during 2015. One effect of lower commodity prices on countries with large commodity exports though is less funding for construction projects – which may affect the wider cost profile for cities in affected countries.

US dollar movement against global currencies

While commodity prices are one key factor in the construction value chain, changes in currency prices are another area of note. In the study, the firm considers the year-on-year changes to commodity prices between October 2015 and 2016.

Brexit looms large in the analysis, with the cost of the sterling plummeting almost 20% against the dollar. The effect of the lower sterling price may see addition construction costs levied on the industry, largely due to inflationary pressures from more expensive imports. However, the low pound environment too makes it a more attractive target for inward investment. India and China too have seen their currencies depreciate against the dollar, with the depreciation of both currencies expected to continue in the face of a strengthening dollar.

Christie adds, “Capital costs associated with constructing the infrastructure and buildings of tomorrow vary widely by location and remain hard to predict. Fluctuating currencies and commodity prices, and unexpected political developments have added to a complex and dynamic mix over the past 12 months. These factors add further dimensions of risk to investment decision making, increasing the challenges associated with securing certainty of outcome."

According to a recent study from Arcadis, the globe's built assets base now stands at around $217 trillion.

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