New York and San Francisco have taken over Zurich, Switerzland, as the most expensive cities in which to build, according to a new study that also shows the global effects of a shortage of construction labor.
Construction costs in New York are set to rise by 3.5 per cent over 2017, reflecting a major influx of real estate investment and surge in construction activity, according to the survey by professional services company Turner & Townsend. The International Construction Market Survey 2017 analyzes input costs – such as labor and materials – and charts the average construction cost for commercial and residential projects in 43 markets around the world.
Average costs in New York have hit $354 per square foot followed by San Francisco at $330 per square foot. Two other U.S. cities made the top ten: Seattle at $280 per square foot and Houston at $233 per square foot. In addition, construction price inflation in San Francisco and Seattle is forecast at 5 percent for the next twelve months – outstripping both a global average of 3.5 percent and national consumer price inflation.
In total, 58 percent of cities assessed by the study are identified as "warm, hot or overheating" – where the market is characterized by a high number of projects and intense competition for physical resources and labor that drives up prices.
Of the U.S. cities surveyed Seattle is categorized as overheating, while New York and San Francisco are considered hot. In the case of New York, Turner & Townsend points to major foreign real estate investment as contributing to the city’s boom in construction spending – which hit an all-time high of $42 billion in 2016.
North America has the highest labor costs of all the regions assessed within Turner & Townsend’s report –with average construction wages hitting $100 per hour in New York. This comes in the context of a global skills shortage for construction, with over half (24) of the 43 markets analyzed reporting labor shortages compared to 20 markets in 2016.
“In stark contrast to conditions in many other global regions, most U.S. cities are seeing a major construction boom – with investment in New York particularly hitting new highs and both San Francisco and Seattle set to see above country average inflation this year at 5 per cent price," says John Robbins, managing director USA, Turner & Townsend. “In common with the majority of developed economies, U.S. construction continues to suffer from an acute skills shortage which is driving up labor costs."