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- Twin challenges of global inflation and net-zero compliance causing construction costs to continue accelerating in cities around the world
- Geneva, London and New York top the charts as most expensive cities in which to build
- Demand for low-carbon performance and climate change resilience adding additional ‘green premium’ to the value of the most sustainable assets
- Even as costs rise, targeted investment will be key to preserving value and protecting against ‘obsolescence horizon’ driven by net-zero requirements
19 April 2023 – Geneva has overtaken London as the most expensive city in the world in which to build, according to the latest Arcadis 2023 International Construction Costs (ICC) report, entitled ‘New Horizons’. According to the study of comparative construction costs across 100 global cities, London has moved to second place, followed by New York (3rd) and San Francisco (4th), which have edged one and two places respectively further up the global rankings thanks to their escalating construction costs.
Due to ongoing inflationary spikes in 2022, interest rates around the world have soared. As a result, many of the top 10 most expensive cities remain unchanged from last year, with perennial European construction cost hot spots, such as Munich, Copenhagen, and Zurich, continuing to appear high in the rankings. Munich in particular has jumped three places to rank as the 5th most expensive city in the world. Costs are now more than 25% higher in Munich than Berlin (27th), indicating a huge host premium when it comes to building in the city.
Notably for 2023, five of the top-10 cities also have dollar denominated or dollar pegged currencies, including Hong Kong. Both Boston and Philadelphia have moved up the index to feature in the top 10 for the first time, thanks to a combination of dollar appreciation and the ongoing impact of local inflation.
The 2023 Arcadis ICC Index covers 100 of the world’s large cities across six continents. The cost comparison was developed covering twenty different building types, including residential, commercial, and public sector developments, and is based on a survey of construction costs, a review of market conditions and the professional judgement of Arcadis’ global team of experts. The calculations are based in USD and indexed against the price range for each building type relative to Amsterdam.
The cost data behind the ICC rankings also accounts for changes to specification, with low carbon design having an impact when it comes to construction pricing. Short term cost uplifts associated with upgraded specifications in both the UK and Europe can range from 5-7% for new homes, and 7-10% for commercial buildings. However, with the need to mitigate against climate change and more stringent carbon reduction targets coming to the fore, sustainable buildings in prime locations are increasingly in high demand. This is resulting in the application of a ‘green premium’ when it comes to how the most sustainable assets are being valued.
This means that, when prioritizing expenditure, owners and investors need to take a long-term view that will be critical when it comes to preserving value. It will be important to balance current asset, owner and occupier needs with the additional costs associated with, for example, complying with future energy performance and decarbonization standards, and mitigating against the effect of climate change exposure. A ‘do nothing’ approach – although often perceived as lower cost and lower risk – has the potential to accelerate what Arcadis has termed the ‘obsolescence horizon’, driven by net-zero requirements.
As Kathleen Abbot, Global Sales Director for Places at Arcadis, explains:
“Investors in long-lived assets must take a long-term view. We know property markets are cyclical, but the challenges we face today in terms of addressing low-carbon performance and climate change resilience won’t go away, and the green premium will only get wider. High construction prices and rising interest rates are a big barrier to action, but ‘do nothing’ isn’t an option when regulations, investment standards and customer expectations are all ratcheting upwards. These barriers need to be addressed head-on, through targeted investment that will protect value, improve net-zero performance, and ensure the longevity of assets and portfolios well into the future.”
Arcadis sets out a practical five-point plan in its report, which outlines a comprehensive approach to the repositioning of existing assets for long-term performance. This includes priorities such as mapping the local timeline for developments in building design regulation, financial markets and reporting standards; and identifying the full range of risk exposures – even if far in the future.
Kayleigh Owen, Global Head of Cost and Commercial Management at Arcadis, adds:
“Owners and investors can also increase the attractiveness, flexibility, and value of their assets by making full use of today’s digital technologies, both to measure and understand how buildings are currently being used and to understand the implications of future adaptations. ‘No regret’ actions that can be taken as part of planned investment programs, such as enhanced energy efficiency measures to reduce high running costs, will be key.”
For more information, the full report can be downloaded here.
10 most expensive cities
3. New York City
4. San Francisco
8. Hong Kong
10 least expensive cities
99. Kuala Lumpur
96. Ho Chi Minh