9 June 2016 | Deborah Shrewsbury
The boom in construction activity and skills shortages, along with the knock-on effects of volatility in commodities markets and China’s economic slide are significantly affecting the costs associated with constructing real estate worldwide.
But the drama doesn’t have to become a crisis, says the International Construction Market Survey 2016, published by global real estate analyst Turner & Townsend, if operators at either a local or international level can understand how these changes could affect the delivery of major projects and programmes.
Companies that are able to start “thinking differently” and adapt to deploy the right tactics to manage risks and control costs could actually “seize opportunities in a new world”, says the report.
And it adds that despite being fettered by a strained supply chain, London remains a forerunner and one of the places expected to buck the general trend to see strong growth in tender prices in a booming construction market – mainly in residential construction.
Gathering cost data from 38 markets and analysing over £500 billion of global real estate investment, the survey paints a picture of an “overstretched, over-reliant and polarised market” within which two distinct types of markets have emerged.
These, it says, can be defined as the ‘overstretched’ – those experiencing capacity constraints and labour shortages, such as London and New York City, and the ‘over-reliant’ – who have seen weak growth in GDP because of oversupply of commodities and falling demand from China – such as Australia and Brazil.
Global construction costs are expected to rise overall by 2.9 per cent in 2016, and the report gives snapshots of the prevailing economic winds in the world’s megacities.
It says regions with a stronger exposure to the Chinese economy – such as Hong Kong, Singapore and Kuala Lumpur are likely to see a slide – along with Johannesburg, Perth, São Paulo and Santiago.
In fact, only nine markets of the 38 levels will see increases in construction activity over the next year, 10 will see falls, and 19 will see little change.
London, central and northern regions of the UK, and Northern Ireland are forecast to be among the nine that will “warm up” during 2016. But the shadow of a possible Brexit vote hangs over the UK’s longer-term prospects. The uncertainty has applied a gentle brake on investment growth and construction output since late 2015. The EU decision, warns the report, will have considerable implications for the future of Britain, Europe, and the wider global economy.
The International Construction Market Survey 2016 can be found here.
