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UK construction costs fall by 10%

Slow economic recovery sees UK construction costs fall by 10% and are now 16% below the mid-2008 peak.

This two year fall in UK construction costs has seen Great Britain fall out of the global top ten to become the seventeenth most expensive place in the world to build, down from ninth in 2009, according to International Construction Cost Comparison Report released today by EC Harris.

The annual report also found that, in the UK, the cost of construction had dropped by nearly 10% over the past 12 months and predicted that it will fall further over the coming year.

Switzerland has replaced Denmark as the world’s most expensive country to build in according the latest the leading international built asset consultancy.

According to the report, the price of construction in Switzerland is some 60% higher than in the UK where costs are now 16% below their peak in mid-2008. This two year fall in UK construction costs has seen Great Britain fall out of the global top ten to become the sixteenth most expensive place in the world to build, down from ninth in 2009.

Other movement in the cost league table saw Denmark drop down to second and Canada, Bahrain and Singapore move up into the top ten. Sri Lanka is the cheapest country with the cost of construction just 27% of the UK.

“We are seeing a two speed recovery in construction costs which closely mirrors the global economy,” said EC Harris head of cost and commercial Mathew Riley.

“Where developing nations in Asia and the Middle East seek to fuel GDP growth we are seeing demand for commodities rise and costs increase.  In stark contrast, the Western nations are continuing to hold back on construction in order to reduce their debt further which is holding prices in check.”

Supply Chain Prioritising East

Even as many economies were crashing, the Chinese economy never stopped expanding, with industrial production increasing by 16% over the past year, and GDP set to grow by 9.9% in 2010. China’s response to the economic crisis was to inject $500bn into the economy for major infrastructure projects and housing investment. 

EC Harris’ report found that whilst this construction output resulted in rising costs, they only grew by the relatively small amount of 3% this year, with 5% predicted next year. Over the next five to ten years, EC Harris is expecting to see construction suppliers shift their capacity to meet this new demand.

“Over the next decade it is likely that we will see the premium to build in Europe erode as global supply chains shift their priorities to the developing nations,” added Riley. “By the time demand returns to the developed nations the ability to build will become much more difficult and potentially disproportionately more expensive.”

Other Global Highlights

UK

UK construction costs are expected to fall until at least the middle of 2011 when major schemes in London should bring a recovery. For the rest of the UK, costs will fall by a further 3-3.5% in 2011.

 Europe

Construction costs are remarkably consistent amongst the largest EU countries with Germany, France, Italy and Belgium within a range of 97% - 107% of UK costs. Eastern European prices are in general cheaper, ranging from 45-50% less than the UK in Bosnia, Macedonia and Slovakia to 20-25% lower in Poland.

Middle East

Following the boom and bust of 12 months ago, the Middle East is slowly recovering, and is investing in a number of built asset schemes. Costs are broadly similar to the UK with Bahrain the most expensive at around 11% higher than the UK. As workloads increase, a shortage of skilled labour in Qatar and the Kingdom of Saudi Arabia could see labour costs rise 15% by the end of 2011.

Asia Pacific

Construction costs in China are around 50% of the level in the UK, but Hong Kong and Singapore are more expensive and compare closer to the UK. In Hong Kong costs are 5-10% lower than in the UK and in Singapore 5-10% higher than the UK.

 North America

The USA was one of the first countries to be hit by the recession, but responded well to the various economic stimuli and is well ahead of Europe on the road to recovery. Despite this, construction prices fell by 15% over the past year and a recovery is not expected until early 2011. Costs in the USA vary greatly across the country, but average out at 10% lower than in the UK. 

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