London has fallen out of the top 10 most expensive global cities for construction costs, despite the fact that inflation is not falling as rapidly as originally forecast in the UK, according to Turner & Townsend’s International Construction Market Survey (ICMS) for 2023.
The average build cost in the capital now stands at US $3,879 per sq m (£3,136), pushing London to the 14th most expensive city, behind a number of secondary US cities, such as Atlanta and Tampa, which have seen exceptional growth driven by the strong US dollar and the impact of green subsidies in the States.
The two next most expensive UK markets of Manchester and Edinburgh ranked 30th and 32nd globally with average costs of $3,097 (£2,504) and $2,999 (£2,425) per sq m respectively.
Turner & Townsend said conditions in the UK market remain highly pressured, with average construction cost escalation of 9.4% over the nine UK markets tracked during 2022. The UK is the fourth most expensive global region for construction labour, with average wages across the nine markets of US$45 (£36.50) per hour.
The rate of inflation is expected to cool to 3.6 percent in 2023 as pressure on supply chains ease and demand falls, with higher interest rates increasing the cost of borrowing to finance projects, but the company warned the UK real estate construction industry faces pressures for the next 12 months, due to the combination of ongoing inflation, the acute skills shortage and high interest rates.
Martin Sudweeks, UK managing director, cost management at Turner & Townsend, said: “Exceptional growth in US markets has seen a relative shift in the UK’s global ranking of the most expensive places to build. However, that shouldn’t be misinterpreted as a sign that the market has cooled. While the expectation is that the rate of cost inflation will ease in the next 12 months, the overall picture is one of high competition for labour and resources.
“Real estate clients need to be braced for high costs to be sustained for the foreseeable future, and plan accordingly. Staying close to the supply chain, monitoring vulnerabilities, and working on productivity will be essential to keep projects moving ahead.”
