The 2014 International Construction Costs report reveals the world’s most and least expensive countries for construction and what it means for 2015
Construction costs in Qatar remain highest in the Middle East, followed by UAE and Saudi Arabia, respectively, according to annual report released today by Arcadis, an Arcadis company and global built asset consultancy firm.
The Arcadis International Construction Cost study benchmarks building costs in 43 countries across the globe and found that relative construction costs have been affected by currency fluctuations, commodity prices and increasing demand for development in many recovering economies throughout the year. With Gulf currencies closely tracking the US dollar, the impact of these fluctuations on Gulf countries has been limited.
“The Gulf region is less impacted by fluctuations in global currencies as market constraints are driving inflation and price movements,” said Terry Tommason, partner and head of property at Arcadis. “Investment on social infrastructure, economic diversification investment and event-driven construction are three key trends positively influencing construction spend in the region.”
In the Gulf region, costs remain relatively modest, despite high levels of investment in transport infrastructure, such as the US$200 billion GCC rail network, and extensive event-led construction in the shape of Qatar’s successful World Cup bid and Dubai’s 2020 World Expo. What remains to be seen is what impact the ongoing instability in the Middle East and recent weakness in oil prices will have on spending plans and, consequentially, pricing.
Tommason continues: “Of the OPEC members, Abu Dhabi, Qatar and Saudi Arabia are amongst the best placed to be able to continue to fund budget commitments, but with oil trading hovering around $50/barrel earlier this month, it is possible that current and capital spending priorities may come under review.”
The top ten most/ least costly countries for construction in 2014 are below:
Switzerland is the most expensive country in the world for construction while Japan and Singapore have seen significant relative cost reductions over the last year. In contrast to last year’s index, European countries dominate the top ten. This is due, in part, to the ongoing economic recovery in the likes of Germany and France which is gradually translating into contractors demanding more for their services. Meanwhile, currency devaluation in many emerging markets means that relative costs have dropped considerably in these areas. Costs in the likes of India, Indonesia, Malaysia, Thailand and Vietnam are now around 35 percent less that of the UK.
Global highlights
Europe
The ongoing crisis in the Eurozone impacted heavily on the construction sector and it could be a long time before the industry in many peripheral economies rallies to anything like the levels seen pre-2008. Furthermore, while optimism about the prospects for the Eurozone waning, poor results for a number of key countries in the second and third quarters of the year have underlined the fragility of the recovery. Caution should be adopted for those operating or looking to invest within the sector.
North America
Overall, the construction sector in the region has enjoyed a similar recovery in 2014 as in 2013. The robust housing market recovery continues to blossom as do shale gas extraction and the unconventional oil and minerals boom in the USA and Canada, all of which make for a more buoyant construction market. Overall demand is on the up and with costs reducing for energy-intensive manufacturers, the industrial sector has seen significant growth. High demand for residential property in central locations means that we are seeing large developers, who traditionally focused on the over-built office market, switching to high-end residential in pursuit of profitable development opportunities.
Asia
In China, the gradual shift to a consumption-based economy means that the huge growth in construction that we have witnessed over the last ten years is unlikely to continue in the long term. Elsewhere in Asia, construction markets had another strong year, particularly in Japan, where the stimulus associated with one of the three ‘arrows’ of Abenomics has had a significant impact. Hong Kong and Singapore also saw strong growth throughout the year, driven by a combination of robust housing markets and high levels of infrastructure spend.
The full report can be downloaded here.
