Gardiner & Theobald’s 10th annual survey of global construction costs takes a look at building costs, labour rates, material prices and inflation rates and forecasts
All around the world, inflation is in retreatIn its 10th annual survey of international construction costs, Gardiner & Theobaldpredicts that the average global inflation rate for building costs will slip to 1.4% next year for the 24 countries that provided forecasts. This would be a significant drop from the 3.1% and 3.7% reported by this same group of countries for 2001 and 2000 respectively.
These inflation figures exclude extraordinary cost trends reported for Kenya and Finland. Kenya is bracing itself for building costs to escalate 20% a year over the next two years. Finland is experiencing the other extreme, with a severe case of deflation under way: building costs are expected to contract 5.8% next year after falling 4.8% during 2001.
Several other nations also are battling deflation, but perhaps the most surprising is Germany. After increasing 2.5% in both 2000 and 1999, building costs in Germany slipped 0.2% this year and this slide is expected to continue into next year with another 0.1% decline.
Keith Rogers, head of G&T’s European operation, says Germany remains a “very tight market” as it is still caught in a long recession. In the former West Germany, stagnant construction demand has kept prices stable. However, in Germany’s eastern states, construction prices continue to decline. In the wake of the boom created a decade before by German unification, construction prices are slowly reaching rock bottom.
But it is in Asia where deflation seems to have taken hold. Although building costs remain relatively flat in most of China, they fell 3.1% this year in Hong Kong after plunging 11.5% in 2000. G&T predicts that building costs in Hong Kong will fall another 1.6% next year before rebounding 0.8% in 2003. Building costs also have been falling in Taiwan, Malaysia and Singapore.
The most chronic deflation has been in Japan. Building costs have fallen there each year since 1993 by a total of almost 19%, including this year’s 0.9% decline. G&T thinks costs may have bottomed out in Japan and predicts costs will hold steady in 2002.
Having enjoyed something of a resurgence in recent years French construction demand now is “quite bumpy,” says Chris Gilmore, chairman of G&T’s French business. He adds that prices of materials and products in France now are broadly stable but law-driven wage hikes are fueling construction contract bid inflation.
In contrast, the UK market remains active, according to Paul Ridout, G&T partner in London. “Broadly speaking, prices have stayed fairly in balance,” he says. Repeated drops in bank lending rates are bringing more projects into the market, causing occasional price hot spots for cladding in some cities. But Ridout says construction inflation this year seems in line with his firm’s 3.5% prediction, and he expects the same increases in 2002.
Italian construction prices are behaving much more erratically, according to Alberto Gerola, principal at Milan-based architect and engineering firm Societa Progettazioni Integrali, a G&T affiliate. Prices of clay roof tiles and rendering plaster, for example, have rocketed by 50% and insulation products have gone up by about 15%, he says. Nevertheless, Gerola says the bulk of Italian construction prices are stable, or rising “with an average of 3% or less”.
At the other end of the European Union’s development ladder, Greece continues to experience a construction boom. EU infrastructure investment kindled the market and current preparations for the 2004 Olympic Games in Athens are adding more fuel. Nevertheless, construction prices are keeping track with general inflation at about 5%, says George Roditis of G&T subsidiary Roditis & Partners in Athens. Local labour continues to be in short supply, but ample availability of low-cost recruits from the Balkans is holding down wages.
Eastern Europe also is in a state of flux, with Poland, the region’s biggest market, showing signs of slowdown. Construction “has certainly seen a decline in workload” with big local and international contractors bidding more and more tightly to maintain backlog, according to Jan Holyst, senior associate in G&T’s office in Warsaw.
Construction prices in Hungary are “softening all the time”, says Mark Rea, in G&T’s Budapest office. With a large number of construction companies competing in a market that is cooling, he adds, “we have to be careful that contractors don’t quote silly prices”.
Market conditions are positive in Russia, where commercial construction increasingly is funded internally, says G&T’s Keith Rogers.
Comparing construction cost data between countries with vastly different economic, political and social systems poses several hazards of which readers could be aware. Due to constantly changing market conditions and fluctuations in exchange rates, the above data should be used for broad “comparative purposes only”, cautions Gardiner & Theobald, London.
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 3 December 2001.
The information on buildings costs includes contractors’ overhead and equipment costs such as site administration, supervision and coordination, trailer hoists and cranes.
Value-added taxes are excluded from the above survey. The average building VAT for the European countries surveyed is 17.6%. However, it ranges from a low of 5% in the Czech Republic to highs of 25% in Denmark, Hungary and Sweden. In other parts of the world, building VATs vary greatly, including 3% in Singapore to 21% in Argentina. Building VATs are minimal in China, Malaysia, Saudi Arabia, Oman and the UAE.
Building 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 for 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 6m, on an out-of-town site, finished to a basic shell with services and heating to the office space (approx 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.
Building type definitions
High-rise apartments Multi-storey 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-qualilty 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.