Soaring prices for buildings of all kinds has propelled London to the head of the international cost league (Cristian Bortes/Wikimedia Commons)

Markets

Central London: the world’s most expensive place to build

20 January 2015 | By David Rogers | 0 Comments

Soaring demand for luxury homes and class A office space has made the centre of London (pictured) the most costly place in the world to do construction work, according to Arcadis’ latest International Cost Comparison. 

The price has been exacerbated by the lack of available property caused by the post-financial crisis slowdown and also the lower productivity of the UK construction industry relative to its American and European counterparts, the report says.

The result confirms once more London’s status as micro-economy separate from the UK as a whole. When it comes to countries, the UK is in eighth position. At the top of that league is Switzerland, which regains its position after falling behind Hong Kong last year.

Generally speaking, however, costs in Europe have been held in check by weak economic growth and the impact of sanctions on Russia. The country giving most concern was Italy, which slipped back into recession in the second quarter of last year, and is expected to grow by only 0.6% this year.

In the Middle East, Qatar was the most expensive place to build, followed by the United Arab Emirates (UAE) and Saudi Arabia. The Gulf region is seeing a surge of investment, exemplified by the Gulf Cooperation Council rail network, the 2020 Dubai expo and preparations for the 2022 Qatar World Cup. A countervailing force, however, is the low price of oil.

Saudi Arabia’s December budget projected a deficit of $39bn – the largest in Saudi history – but sustainable “for the medium term” given that the Kingdom has currency reserves of about $750bn.

Terry Tommason, head of property at Arcadis’ EC Harris subsidiary, said: “Of the Opec members, Abu Dhabi, Qatar and Saudi Arabia are among the best placed to be able to continue to fund budget commitments, but with oil trading hovering around $50 a barrel, it is possible that current and capital spending priorities may come under review.”

In Asia, Japan has become a cheaper country to build in than the US, largely because of the devaluation of the yen relative to the dollar. Construction costs in Indonesia, Malaysia, Thailand and Vietnam are now all less than 35% of UK levels, a consideration that is bound to help economic growth in those countries. The cheapest market of all is India, even though tender price inflation is presently running at 8%.

China is down at 30th most expensive place to build. The report says that its gradual shift to a consumption-based economy means that the huge growth in construction seen over the past decade is unlikely to continue in the long term.

Here are the world’s 10 most expensive construction markets:

  1. Switzerland
  2. Denmark
  3. Hong Kong
  4. Sweden
  5. Australia
  6. France
  7. Austria
  8. UK
  9. Germany
  10. Belgium

View the Arcadis report here.