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Johannesburg experiences highest construction cost inflation in

The cost of global construction is set to rise by 4.3 percent during 2018 compared to 4.1 percent in 2017, as developers face the challenge of continued shortages of relevant skills to deliver an increasing number of projects, according to new research from global professional services firm Turner & Townsend.

The Turner & Townsend International Construction Market Survey 2018 identifies growing competition for labour and resources as strong economic growth in key global markets unlocks greater construction activity. Fresh investment in infrastructure is creating significant opportunity for real estate development, and the growing disconnect between investor appetite and industry capacity to build is driving up cost inflation.

Forty-five percent of markets surveyed within the report are shown to be heating up, compared with 33 percent in 2017. Warming markets are typically characterised by a large number of projects that are pushing up prices.

New York City remains the most expensive location in which to build, with the average cost of construction in the city climbing 3.5 percent to US$3,900 per m2 in 2018. New York is followed by San Francisco (US$3,737 per m2), Hong Kong (US$3,704 per m2), Zurich (US$3,652 per m2) and London (US$3,618 per m2).

On the African continent, of the cities surveyed, Johannesburg has experienced the highest construction cost inflation, rising by 6 percent in 2018 to an average cost of US$1,079 per m2.. However, Kigali in Rwanda tops Jozi’s metric, with a per m2 cost of US$1,082, increasing by two percent in 2018. In other African cities included in the survey, construction costs are currently US$970 per m2 in Kampala, Uganda ; US$857 in Dar es Salaam, Tanzania; and US$724 per m2 in Nairobi, Kenya.

Skills shortages have been a major force behind continuing cost escalation. The five top cities within the report have seen labour rates increase by 10 percent in the last year, with New York construction workers commanding an average cost of labour of US$98.30 per hour. Overall, 58.7 percent of markets within the survey report a skills shortage, with only three markets – Houston, Muscat and São Paolo – reporting a surplus of labour.

The global trend towards higher construction costs has been offset only by Perth, Australia, and Muscat, Oman, where
prices fell by one percent. Both cities have continued to see limited investment in new projects on the back of low commodity prices. However, Turner & Townsend’s 2018 International Construction Market Survey forecasts that all markets surveyed are expected to rise in 2018.

The survey analyses input costs – such as labour and materials – and charts the average construction cost per m2 for commercial and residential projects in 46 markets around the world. In recognition of the growing importance of Asian markets, the 2018 report includes Shanghai, Jakarta and Ho Chi Minh City for the first time.

Steve McGuckin, Global Head of Client Programmes at Turner & Townsend says that fundamental changes were needed to the industry model to control projects costs:

“Global GDP growth of 3.8 percent is driving a resurgence in construction activity across international markets. While this uptick will inevitably push up costs, inflation is being exacerbated by skills shortages: put simply, we need to do more work with fewer workers.

“To meet this challenge, we need a fundamental shake up of the industry model to incentivise investment into new digital tools, modern manufacturing methods and automation to improve productivity and ensure long-term change. Projects need to be set up to deliver better performance from the construction supply chain and available workforce – rewarding innovation in methods and materials, which ensures better outcomes for the communities we build for.”