Turning Old Plastic into New Footpaths
Fly-in, Fly-Out Workers Run a Greater Risk of Depression
Going Mobile: Boosting Safety and Efficiencies on the Construction Site
Newcastle Light Rail Construction Moves Quickly to Meet 2019 Deadline
Motorway Speeds Ahead of Western Sydney Airport Opening
Flinders Centre Bankstown Scheduled to Open Mid-2018
Commercial Construction Set to Have the Best Year in Decades
World’s Tallest Timber Building Set to Open in Brisbane Later this Year
By Willow Aliento
September 12, 2017
When a skills shortage meets steady economic growth, the result in many major construction markets is increasing costs. That’s what the latest Turner and Townsend International Construction Market Survey proves.
The 2017 survey analysed costs for materials, labour, and project preliminaries across 43 global markets. It also highlighted how costs could become drivers of change in the industry. At the same time, it also demonstrates how the ever-moving feast of construction can be radically altered at the stroke of a pen or the arrival of a major disaster.
New York took the top spot as the most expensive place to build, while Perth in Western Australia was the only city analysed where the cost of construction is in decline. Globally, construction costs inflated by an average of 3.6 per cent in 2016, and are expected to continue to rise by an average of 3.5 per cent worldwide through 2017. Unlike New York, San Francisco is expecting cost increases higher than the global average - five per cent for 2017.
Both of these cities were identified as hot markets, where activity levels are high and so are construction prices as the competition for tenders is low. Actually, San Francisco is the second most expensive place to build after New York of all the markets surveyed.
Markets affected by the commodities crash in 2016 are among those identified as cold, and this is one of the factors the analysts identified as affecting Perth. With the slow-down in mining infrastructure construction and mining activity, there has been a corresponding slowing of apartment and commercial office construction in the city.
Sydney and Melbourne were identified as warm, and Brisbane as lukewarm.
However, forecasts are not set in stone. Things can change quite dramatically and rapidly. The best example for it is Houston, which was identified as a lukewarm market in the survey.
“In Houston, residential and non-residential construction starts are falling following five years of solid growth and some projects are being cancelled as a result. Office vacancy climbed to nearly 20 per cent, indicating several years of weakness ahead,” the authors said.
Now, just as New York saw a multi-billion dollar surge in construction activity following Superstorm Sandy, Houston will also need a major mobilisation of construction efforts to recover from Hurricane Harvey.
It is not only natural disasters that can change the forecast. The survey highlighted that in Australia, residential building of multi-storey apartments has been booming in Melbourne, Brisbane, and Sydney largely due to low interest rates and strong demand from Chinese investors.
However, since the survey was undertaken, the Reserve Bank of Australia tightened lending rules for domestic investor buyers, the Chinese Government has moved to limit offshore property investment, and the major Australian banks have curbed lending to offshore residential investment property buyers. The New South Wales state government has doubled the stamp duty surcharge for foreign investors as well as increasing land tax, and the Victorian government cut stamp duty concessions for offshore investors. Analysts are already predicting this will impact on apartment construction activity.
Actions by the Chinese government to reduce capital outflows were also mentioned by the Survey in relation to prospects in New York. It states: “A slowdown in Chinese investment may occur in 2017 as the Chinese government enforces stricter scrutiny of offshore investments, but also as a consequence of anticipated tougher trade measures.”
Construction costs were calculated for six types of projects: high-rise apartments, prestige office block, large warehouse distribution centre, general hospital, primary and secondary schools, and retail shopping mall. Averaging the costs of all six types in New York showed a cost of US$ 3,806.92 per m2, and US$3,549.17 for San Francisco.
While, in Australia, averaging the costs of these building types across the cities of Sydney, Brisbane, Melbourne, and Perth showed that Sydney is the costliest, averaging US$2,563.73 per m2.By comparison, in Singapore, costs average US$1,933.90 per m2, and in Madrid, they average US$1,843.97 per m2.
There are some interesting variations between cities in the same region in terms of the detailed breakdown of typologies and materials costs. In Australia, Brisbane, for example, is more expensive than Melbourne for building a shopping mall, and more expensive than Sydney for building a prestige car showroom. Perth and Brisbane are more expensive than Sydney for every square metre of precast concrete wall. Formwork to the soffit of a slab is costliest in Brisbane too, as is a single cored door with frame and hardware, or a medium tufted carpet supplied and laid.
Preliminaries were identified as a key driver for costs, particularly in busy cities such as New York. Costs include traffic management, setting up in tight spaces, and navigating regulations.
Globally, preliminaries averaged 10.8 per cent of costs – while contractor, supplier, and subcontractor margins averaged only 5.9 per cent. In New York, preliminaries are higher than the average at 13 per cent – margins are also higher at seven per cent. In San Francisco, on the other hand, preliminaries are lower than average at 8.9 per cent and margins are on the average at 5.9 per cent.
In Australia, Sydney has the highest preliminaries costs of 14 per cent, followed by Brisbane and Melbourne at 12 per cent, and Perth at 11 per cent. Margins in all four Australian cities are lower than the global average – between 3.5 per cent for Perth to 4.5 per cent for Sydney.
The report said that construction wages are highest in New York and Zurich – almost US$100 an hour - and the average for all five North American markets studied is US$72.50 an hour. In June this year, the New York Building Congress released research showing that the construction workforce in NYC had reached record levels, and that wage growth in 2016 was the highest it had been since 2007.
"Thanks to a virtually unprecedented building boom in both the residential and office sectors, the New York City construction workforce has grown by an impressive 30 per cent over the past five years," New York Building Congress President and CEO Carlo A. Scissura said. "Just as importantly, about three-quarters of these well-paying jobs are going to residents of the five boroughs, further strengthening the city's economy and tax base."
Australia has the second highest average construction industry wages at US$56.20 an hour.
The report said that in markets like these where wages are high, the sector looks to ways of saving on labour through automation. The analysis highlighted the need for the industry to improve productivity as part of addressing the costs dilemma. Compared to manufacturing, which averaged a 3.6 per cent improvement in annual productivity over the past 20 years, construction has averaged one per cent.
A February 2017 report by the McKinsey Global Institute, Reinventing Construction Through a Productivity Revolution, highlighted the role of technology in improving the sector’s productivity and reducing costs. The report identified seven “key levers” that together can increase productivity by up to 60 per cent and reduce costs by up to 38 per cent. These are:
The report’s authors estimated that using these strategies to boost productivity could raise the sector’s value by $1.6 trillion – and that one third of this value opportunity is in the USA. Some of these evolutionary strategies were identified in the Turner and Townsend survey as already gaining traction.
“Leading firms are adopting advances in on-site factory and off-site manufacturing and assembly, 3D printing, automation and robotics to improve efficiencies. Significant advancements in data management are starting to play a major role in unlocking productivity. Effective management of the data asset alongside the physical asset is improving the efficient planning, delivery and operation of built assets.
“Developments such as integrated design and asset management (design, asset, cost, and schedule all linked and visualised) are helping better understand the asset, both during construction and handover into operation.”
If you liked this article, here are a few more you might enjoy:
How to Hire Talented Workers Even During a Labor Shortage
Help Wanted - How Technology is Fighting the Construction Labor Shortage
Project Management Guide Part 3: Project Controls
21st Century Job Costing
Looking for a career change? Or have you maybe hit a deadend in your career path? A job in construction could be the solution you’ve been looking for. Construction isn’t just all hammers and hardha... Read More
Listen and learn from leaders of top construction firms as they share how they are using new apps, web tools, and other software to maintain a safe... Read More
Pete says that Procore quickly breaks down the complicated pieces of data in his jobs, and presents them to the end user in a digestible format. "T... Read More
Operations are demanding mobile solutions because they're experiencing the efficiencies of mobile applications in their personal lives and they wan... Read More
Today’s data storm raining down on construction companies are causing some owners and managers to withdraw and hang tight to the past in an effort ... Read More
New York City is beefing up its safety requirements for construction workers in light of rising accidents on construction sites. Local Law 196, whi... Read More
The American Rental Association (ARA) has recently released its five-year revenue forecast for the equipment rental industry. By 2021, the revenue ... Read More