Construction costs in New York are set to rise by 3.5 per cent over 2017, reflecting a major influx of real estate investment and surge in construction activity, according to new research by professional services company Turner & Townsend.
In the light of rising costs and a growing skills shortage, the International Construction Market Survey 2017 (ICMS) calls for increased investment in innovative technologies, new construction methods and better use of data to boost productivity in the sector.
The report analyzes input costs – such as labor and materials – and charts the average construction cost per m2 for commercial and residential projects in 43 markets around the world.
New York and San Francisco have both overtaken Zurich in Switzerland as the most expensive place in which to build. Average costs in New York have hit US$354 per ft2 (US$3,807 per m2) followed by San Francisco at US$330 per ft2 (US$3,549 per m2). The strength of the US dollar has helped ensure that four US cities make the top ten, including Seattle at US$280 ft2 (US$3,014 per m2)and Houston at US$233 (US$2,509 per m2).
Construction price inflation in San Francisco and Seattle is forecast at 5 per cent for the next twelve months – outstripping both a global average of 3.5 per cent and national consumer price inflation.
In total, 58 per cent of cities assessed by the study are identified as ‘warm, hot or overheating’ – where the market is characterized by a high number of projects and intense competition for physical resources and labor that drives up prices.
Of the US cities surveyed Seattle is categorized as overheating, while New York and San Francisco are considered hot. In the case of New York, Turner & Townsend’s survey points to major foreign real estate investment as contributing to the city’s boom in construction spending – which hit an all-time high of US$42 bn in 2016.
North America has the highest labor costs of all the regions assessed within Turner & Townsend’s report –with average construction wages hitting US$100 per hour in New York. This comes in the context of a global skills shortage for construction, with over half (24) of the 43 markets analyzed reporting labor shortages compared to 20 markets in 2016.
John Robbins, Managing Director – USA, Turner & Townsend commented: “In stark contrast to conditions in many other global regions, most US cities are seeing a major construction boom – with investment in New York particularly hitting new highs and both San Francisco and Seattle set to see above country average inflation this year at 5 per cent price.
“In common with the majority of developed economies, US construction continues to suffer from an acute skills shortage which is driving up labor costs.
“This is especially relevant in the context of much-needed investment in major infrastructure – which the new administration in Washington has pledged to address. To deliver these and similar projects effectively, US construction must tackle the skills shortage, embrace new technologies and methods of building, as well as using data analytics and better program management techniques for better speed to market.”