Construction costs soaring as London hit the hardest

The recently published International Construction Costs Index has revealed a worrying statistics that could seriously effect development in London, writes development specialist Richard Carr.

Rising costs

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Construction costs soaring

The report, commissioned by global design and consultancy business Arcadis, found that London is the most expensive city in Europe and the second most expensive city worldwide in which to build.

Only New York tops London across the globe with the report revealing that cost premiums in the top cities range from 40% to 60% in comparison with other European counterparts.

Cities like Doha and Dubai rank low down in the top 20 thanks to the low cost of labour and energy.

Imbalance

Of the 44 cities analysed in the index, London’s expensive construction market stood out for its crucial imbalance. A strong demand from both domestic and international investors has increased interest in London development, however limited bidding resources and opportunism by contractors has driven up prices of construction.

For example:

  • A 5 star hotel costs 20% more in construction work in London than in Paris and is 50% higher than in Dubai

High inflation, which has affected the cost of labour and profit margins, Richard Carr believes is threatening the viability of commercial and public sector building projects such as residential development.

“In London, the synchronised recovery is losing momentum. With inflated construction costs and high land values threatening the viability of commercial and residential development, workloads look to be losing steam even before the capital’s infrastructure boom really takes flight,” explained Simon Light, Arcadis UK client development director.

State-side appeal

Despite the rising construction costs, Arcadis’ report claimed that the London market continues to be attractive with investors from across the Pacific. The strength of the US dollar has put US investors is a positive position.

Richard Carr believes that the government has a huge opportunity with the influx of refugees to put them on construction training and get them contributing to the country’s GDP. The irony of George Osbourne’s desire to build more “yet to be seen” is that the labour market will shrink further in construction and costs will escalate further.