Gardiner & Theobald鈥檚 12th annual survey of global construction costs takes a round-the-world
trip to compare labour rates, building costs, material prices and inflation forecasts
Asian success story: Inflation takes an upward turn
Asia is the hot story in this year鈥檚 survey of international construction costs. After years of decline in the Asian construction industry, this year there were signs of a transformation as building tender prices increased for the first time in years.
In its 12th annual survey of international construction costs, international project cost management consultant Gardiner & Theobaldreports that construction inflation averaged 3.3% for 20 nations in Europe, Asia and the Middle East. Up just 0.1% from last year鈥檚 average of 3.2%, but down on 2001鈥檚 figure of 3.7%. Overall, worldwide construction markets are still weak and inflation is expected to have eased still further in 2004.
To stop the overall inflationary figures being skewed by a few nations with extraordinary cost trends, G&T have excluded these nations when calculating the average figure. One country whose figure was excluded was Romania. Currently construction price inflation is running at 19% 鈥� the highest rate of all countries surveyed. But even this rampant rate shows a marked improvement on 2002鈥檚 figure, which was a whopping 40%.
As construction inflation in Romania shows signs of a marked slowdown, another turn-up for the books is South America. Here the financial crisis in Argentina forced construction inflation to rocket upward at a staggering 81% in 2002. By contrast, this year鈥檚 figure of 5.6% is far more sustainable. G& T predicts that this will fall still further this year to 5.3%.
The real transformation this year, however, is not in South America but Asia. After years of suffering deflation, the Asian markets are showing signs of recovery. Leading the pack is Hong Kong, which this year has construction price inflation of 5.1%, reversing a five-year slide in which prices fell a cumulative 40%.
Thailand, too, is on the up. In 2002, construction prices fell 3.4%. By contrast, the figures for 2003 show construction inflation running at 7.1%, an increase of more than 10 percentage points. A similar turnaround is under way in Singapore: this year construction prices are up 2.3% compared with 0% in 2002 and a fall of 9.5% in 2001. And after years of construction price deflation, even Japan is showing signs of an increase in building costs, albeit by a miserly 0.1%. Though construction prices are stable for the enormous Chinese market, with inflation running at 0.5% for both 2002 and 2003, G&T predicts inflation will decrease to 0.4% this year.
In the Middle East the focus is on the United Arab Emirates. The normally stable construction price inflation is set to be shattered in the wake of a strong demand for construction materials. The boom in Dubai makes it the powerhouse of the region; construction of megaprojects such as the Palm 鈥� a tree-shaped manmade island to house the super-rich, currently under construction in the Arabian Sea 鈥� are putting pressure on resources. Jeff Higgins, a partner in G&T鈥檚 Dubai office predicts there will be a 鈥渟ignificant increase鈥� in materials prices in the Emirates over the next 12 months. In addition, Higgins warns that new regulations on the quality of workers鈥� camps will push up labour costs.
In continental Europe, construction inflation is a mixed picture, with Romania and Hungary showing the highest rates of tender price inflation, whereas for the big two 鈥� Germany and France 鈥� the markets are fairly stable.
Paul Ridout, senior partner at G&T describes continental Europe as a 鈥渕ixed bag鈥�.
In Hungary, construction prices rose from 5% in 2002 to 7% in 2003. In Slovakia, too, construction inflation is running above the European average 鈥� construction tender prices here shot up from 0% to 6% last year and G&T鈥檚 forecast for 2004 has inflation running at 5.6%. However in Poland, Eastern Europe鈥檚 biggest construction market, tender price inflation has been stable at 1% over the past two years.
Meanwhile in France, construction inflation is currently running at 2.9%. With demand stable, the inflationary influence of the recently introduced legally binding 35-hour working week appears to have been capped. G&T predicts a small rise in prices this year, but only by 0.3% to 3.2% for 2004.
Further east in Italy, rises in the cost of steel reinforcement and labour costs are expected to lead to rises in the cost construction, up from last year鈥檚 1.7% to an anticipated 2.6% in 2004.
If Europe last year was a mixed bag, the big question this year is what impact, if any, will European accession have on material and construction prices? With Poland, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia and Slovenia all joining an enlarged EU on 1 May, along with Cyprus and Malta, increased investor confidence is expected to manifest itself as an increase in construction in these countries. It is too early to say what that impact will be. However, it is one more hazard to be aware of when using this year鈥檚 data.
Methodology
G&T compiled the international cost survey from its worldwide network of offices and associated companies. All costs were provided in local currency and converted to euros using the exchange rates in effect on 24 November 2003 as published in London鈥檚 Financial Times.
The information on buildings costs includes contractors鈥� overhead and equipment costs such as site administration, supervision and co-ordination, trailer hoists and cranes.
The International Construction Cost Survey is compiled by G&T using data provided by others. While every effort has been made to ensure the information is correct, no liability can be accepted for any errors or omissions within the survey. Comparing construction cost data between countries with vastly different economic, political and social systems poses several hazards. Because of the constantly changing market conditions and fluctuations in exchange rates, the data published here should be used for broad 鈥渃omparative purposes only鈥�.
VAT is excluded from the survey.
Offices and industrial: 好色先生TV type definitions
City-centre heated office Self-contained building of a size and height typical of major cities in each country; building costs include for accommodation to a good finish with raised floors, carpet, suspended ceilings, heating, lighting and power, but excluding partitioning.
Air-conditioned office Self-contained building of a size and height typical of major cities in each country; building costs include accommodation to a good finish with raised floors, carpet, suspended ceilings, air-conditioning, lighting and power, but excluding partitioning.
Factories, warehouses, industrial Large, single-storey unit of steel portal frame and profiled aluminium cladding, with an eaves height of at least 6 m, on an out-of-town site, finished to a basic shell with services and heating to the office space (about 5% of area).
Out-of-town business park Self-contained low-rise building in a campus location. Costs include high-quality cladding and accommodation to a good finish with raised floors, carpet, suspended ceilings, air-conditioning, lighting and power, but excluding partitioning. The above descriptions are indicative only, as construction specification and requirements will vary between countries; building costs are for typical buildings. N/A means not applicable.
Residential and retail: 好色先生TV type definitions
High-rise apartments Multistorey typical of major cities in each country, apartments finished to a high standard, all floors served by lifts.
Shopping centre Major shopping developments incorporating retail space, pedestrian areas and service areas, but excluding car parks.
High-quality capital city hotel Fairly upmarket hotel in excess of 400 bedrooms, conference facilities, extensive restaurant, lounge and foyer areas, leisure facilities including indoor pool, retail and service areas.
Provincial/suburban hotel Medium-sized hotel, conference facilities, extensive restaurant, lounge and foyer areas but no swimming pool or other leisure facilities.
The above descriptions are indicative only, as construction specification and requirements will vary between countries; building costs are for typical buildings. N/A means not applicable.
