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Homebuilding and Commercial Costs in London Continue to Surpass Rest of UK

Construction costs in the capital have gone up 5% in the past 12 months, but the falling pound has pushed London from third to fifth place in a global building cost ranking.

The International Construction Market Survey (ICMS) studies build costs for both residential and commercial projects throughout the world. Carried out by Turner & Townsend, it determines the average cost of building a variety of projects, from homebuilding costs to apartments to shopping malls to warehouses.

Fuelled by a combination of infrastructure work demand and skills shortages, London construction costs are looking to increase by 4.1% this year.

While the city ranked third in last year’s report, it has now plummeted to fifth place. The rankings drop is indicative of the UK pound’s depreciation compared to the US dollar since Brexit.

New York has surpassed Zurich as the most expensive city for new construction, with an average cost of $3,807 per square metre.

Although construction costs in London continue to climb, there are indications that for the rest of Britain, the traditional north-south difference in homebuilding costs and commercial building prices is beginning to get closer. This year, the construction market in the north of England is about to undergo the biggest price inflation outside of London.

The growth rate may be decreasing in parts of the UK but build costs are continuing to increase everywhere. When this reality is combined with a recent Mace assessment that there will be no major rise in tender prices this year, the conclusion is that contractors will be hard-pressed to realise any profits.


Specialists in Construction Insurance

International construction costs are predicted to go up by 3.5% this year. The primary exceptions are in the Far East, where lowering global prices for raw materials have slowed down the development market.

Steve McGuckin, Turner & Townsend global managing director for real estate, said that the survey was indicative of an increasingly active construction industry struggling with skills shortages in an improving worldwide economy.

Mr McGuckin said that London has long propelled the construction industry in the UK, but in the north, the market is starting to pick up. The pound’s devaluation has increased foreign investment in other areas of the country, with Manchester emerging as one of most appealing alternatives to London.

Labour shortages continue across the globe, with 24 of the 43 analysed markets reporting deficits compared to 20 markets last year.

High variations in labour costs and skill levels from one region to the next are also evident, with construction workers in New York and Zurich making up to $100 per hour. Their counterparts in the UK usually make around $41.10 which has a big impact on homebuilding costs and commercial building project finances.

Mr McGuckin said that in his opinion, construction is not doing enough to tackle this issue, which has the potential to become a crisis. The construction industry in the UK also needs to increase productivity levels, and there is a pressing need for clients and contractors alike to embrace new construction methods and technologies as well as use improved project management to increase output.


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