London named Europe’s most expensive city to build

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London might attract big prices, but it is also one of the most expensive cities in the world to build in, according to new analysis…

Building in London could be more costly than you would think. The city reportedly has the highest construction costs in Europe and the second highest globally. It is beat only by the city that never sleeps: New York.

Hong Kong, Geneva, and Macau came in third, fourth, and fifth place, respectively, with Copenhagen, Stockholm, Frankfurt, Paris, and Singapore taking the remaining spots in the top ten.

The data, which was published in Arcadis’ International Construction Costs Index, examines the cost of construction across 44 major cities. It found cost premiums among the top most expensive areas ranged from 40 to 60 per cent when compared to other European counterparts.

The index revealed a significant imbalance in London’s construction market, as it found demand from domestic and international investors was pushing bidding opportunities, but limited bidding resources. This coupled with opportunism by contractors had pushed up construction prices massively.

This means an international five star hotel in London cost 20 per cent more to build than in Paris, and 50 per cent more than in Dubai.

Additionally, the analysis warned unpredictable patterns of high inflation has affected the cost of labour and made predicting prices in the capital difficult. This is threatening the future of commercial and public sector building projects.

Arcadis said there was little doubt the London market was attractive to international investors, but warned some areas of the city were no longer profitable to build in. This was pushing development out of prime areas and into sub-prime parts of the capital, as well as to other UK cities.

Arcadis UK client development director Simon Light said: “The global cities in this year’s index are crucial engines of growth, reliant on the investment and stability that construction can bring to deliver a sustainable economic future.

“The macroeconomic view is encouraging, with the recovering Eurozone set to generate steady growth for the European Union construction industry over the next three years.

“In London, the synchronised recovery is losing momentum. With inflated construction costs and high land values threatening the viability of commercial and residential development, workloads look to be losing steam even before the capital’s infrastructure boom really takes flight.

“Delayed investment decisions are reducing actual workload and we are seeing early signs of a return to reason in procurement.

“There is now much more focus on agreeing prices prior to starting on site, ensuring no loss of value should current construction volumes be maintained.

“We expect to see the rate of inflation fall to 4 per cent to 5 per cent in London for 2016 and for a real opportunity to ‘reset the dial’ on projects coming forward in 2016 and 2017,” he added.

Commercial centres in the Middle East were ranked around the mid-point, with Doha coming in twelfth and Dubai nineteenth. This, the analysis said, was due to the low cost of labour and energy in the region.

Among the lowest ranking cities for construction were Taipei, Bangalore, Bangkok, Kula Lumpur, Ho Chi Min, Bucharest, Prague, Sarajevo, Sofia, and Jakarta.

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