London build costs soar to second most expensive in world

Building in London costs more than any city in Europe and is the second most expensive city for new buildings in the world, according to cost consultant Arcadis.

The latest International Construction Costs Index published by Arcadis analysed the relative costs of construction across 44 major cities and ranked New York as the world’s most expensive place to build closely followed by London, while Bangalore and Taipei are the cheapest.

The Index revealed that the cost for the construction of a five star hotel in London is 20% above that in Paris and 50% higher than in Dubai. The rising costs are said to be driven by a combination of limited bidding resource and supplier opportunism.

Simon Light, UK client development director, Arcadis, said: “In London, the 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 4-5% in London for 2016 and for a real opportunity to ‘reset the dial’ on projects coming forward in 2016 and 2017.”

The Index further states that rapid inflation affecting the cost of labour and on-costs such as profit margins, mean that accurately predicting prices has become near-impossible in some areas of the market.

“There are signs that supply chain insolvencies are on the rise. Cash-flow failures, problem projects and lack of control over the supply chain are becoming ever more prevalent issues,” said Arcadis.