Global construction industry polarises between intense competition and shrinking demand

  • International construction industry heads in opposite directions, as some markets overheat while those that over-rely on China or commodities suffer a sharp slowdown
  • Booming markets like London, New York and Seattle report intense competition, rising costs and shrinking margins
  • At the other end of the scale, construction costs in Beijing have slumped by 10 percent amid weaker demand
  • Findings are from a study of construction costs in 38 global markets conducted by the programme managers Turner & Townsend

The global construction industry is diverging as markets are buffeted by opposing forces – overstretch in booming economies and downturn in markets that rely on commodity exports or trade with China – according to our recent international construction market survey 2016.

The survey analyses input costs – such as labour and materials – and charts the average construction cost per m2 for both commercial and residential projects in 38 markets around the world.

At nearly $3700 per m2, average construction costs in Zurich are the highest in the world, closely followed by New York ($3650 per m2) and London ($3550 per m2).

However these cities are being rapidly caught up by the tech hubs of San Francisco ($3400 per m2) and Seattle ($2800 per m2).

Our researchers warn the Seattle market is overheating, and predict that construction costs in the US city will rocket by a further 8 percent in the next 12 months.

Meanwhile average construction costs in San Francisco have already risen by 5 percent in the past year, and are forecast to continue increasing at the same rate this year.

At the other end of the inflationary scale, Beijing’s construction costs tumbled by 10 percent in the year to April – an acceleration of a downward trend that saw costs fall by 5 percent in the year before. The report predicts that prices will remain stagnant in the Chinese capital over the next year.

In a reflection of the weakness of demand in oil-reliant economies, the research also predicts zero cost inflation over the next 12 months for the United Arab Emirates and in the Omani city of Muscat.

The following table ranks the 38 markets studied according to current levels of construction activity. “Hotter” markets have a higher number of projects, and consequently there is less competition for tenders, which tends to drive up prices. The report predicts that activity levels will increase over the next year in nine of the markets, stay the same in 19, and fall in 10.

Steve McGuckin, Global Managing Director – Real Estate, Turner & Townsend, commented:

“Two macro-economic factors – the sharp fall in oil prices and China’s slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market.

“Some regions are now facing acute overstretch, with construction demand outstripping what the industry is able to supply.  Meanwhile in markets with a heavy reliance on either trade with China or on commodities exports, both demand and levels of investment have fallen.

“However against this divergent backdrop, some challenges – and some solutions – are universal. Chief among the challenges is an endemic skills shortage, which risks driving up construction costs even in markets with weak demand.

“In overstretched markets both contractors and their clients must take urgent action to improve efficiency and keep cost inflation in check, while those operating in subdued markets should seize the opportunity to strip out waste and get the skills mix right for when demand returns.

“While advances in technology like Building Information Modelling (BIM) and modular construction can help, efficiency improvements of the scale required will only be achieved if the industry evolves - and develops leaner, more collaborative ways of working across the supply chain.”

Two macro-economic factors – the sharp fall in oil prices and China’s slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market."

Steve McGuckin Managing Director, real estate

For further information contact:

Ginny Patten
Manager, global marketing and communications

t: +44 (0)207 544 4000
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