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San Fran Named Most Expensive Place to Build

Tuesday, April 23, 2019

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This year’s International Construction Market Survey, conducted by U.K.-based cost consultant company Turner & Townsend, revealed that San Francisco, California, has peaked as the world’s most expensive location for new construction.

The study was steered by six different types of construction in average building costs including: apartment high-rises, warehouse distribution centers, prestige office buildings, hospitals, schools, shopping centers and malls.

Breaking Down the Price

According to the report, by the end of 2018, San Francisco’s price per square foot had gone up 5 percent from the previous year. Construction costs in New York City also rose 3.5 percent, but not enough to hold its spot as No. 1 on the list.

The top five cities in regards to the most expensive construction expenses are: San Francisco, New York City, London, Zurich and Hong Kong.

To put the prices in perspective, currently, San Francisco averages $416 per square foot to build. New York sits at about $368 per square foot, with London not far behind at $352, Zurich estimates $349 and Hong Kong almost ties for fourth at $348.

Hand-in-hand with the price to build a structure is the price to hire construction workers to complete the project. Through the increase in prices to build, construction wages have also increased.

Research shows that the highest labor costs have been recorded in Zurich, where general labor can run as high as $99 per hour and a skilled electrician might even peak at $118 per hour. However, in the United States, New York still leads in this category with an average construction wage reported at $101.30 per hour. San Francisco sits at the third-highest construction wage in the world with a recorded average of $90 per hour.

What’s Causing the Increase

Although San Francisco has jumped to the top of the list this year, many U.S. cities are expected to see increases in the construction market as well. While San Francisco and Seattle are expected to see another 6 percent jump, Atlanta, Chicago, Indianapolis and Houston are estimated to rise about 4 percent; New York and Phoenix are expected to rise 3 percent.

One reason that T&T explains the enlarged construction costs in certain cites is the demand for space in the growing technology industry. According to T&T, these type of tech communities are quickly becoming a city bargain. So much so that companies are starting to take advantage of select state tax incentives, the metro area’s stability and places with a relatively low-cost power supply, in addition to areas at a low risk of natural disasters.

Phoenix and Northern Virginia currently stand as the top states in new data center construction projects.

In addition to new data centers, materials was named another contributor to the rise in price. According to the San Francisco Chronicle, steel tariffs in San Francisco, which were passed in March 2018, led to a 17 percent increase in the cost of reinforcement bars and 30 percent increase in the price of beams.

World Differences

As reported in the survey, the lowest 10 cities host a construction cost average accumulating to 22 percent of those within the top 10, compared to 25 percent in last year’s findings.

The report suggests that the main reasons for the vast difference is, “the massive disparity between labor costs worldwide. China, India and Africa have the lowest, whereas North America has the highest, with Europe and Australasia a little behind.”

In some cities where the cost of labor is so high, the adoption of digital technology might drive the interests of increased productivity. However, in cities where the construction wages are still low, it serves to be more efficient and cost effective to continue to hire more laborers.

The survey also reports that the global construction market is maintaining its momentum despite the trade war’s economic impact. T&T’s global managing director for real estate, Neil Bullen, stated, “In the past 12 months, the economic backdrop has shifted.

“The International Monetary has cut its forecast for global economic growth, stock markets have retreated, and house price inflation has slowed. Added to this, political turmoil and trade-war tensions have increased uncertainty and volatility within global markets, with tariffs directly affecting the construction sector. Despite these headwinds, the global construction sector entered this year with significant momentum, having seen growth of five percent in 2018.”

The globe is keeping this momentum through its 35 markets that are reported to be warm, hot or overheating; 23 markets warming up; five markets cooling; and 18 new markets in the 2019 survey.

The ICMS 2019 conducted this research by looking over 64 global markets, 18 new markets and nine different build categories.

   

Tagged categories: Asia Pacific; Building operations; Commercial Construction; Construction; EMEA (Europe, Middle East and Africa); Good Technical Practice; Industry surveys; Labor; Latin America; Market; Market data; Market forecasts; Market research; North America; PaintSquare App - Commercial; Research and Markets; Residential Construction; Z-Continents

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