Unpredictability and the Cost of Construction

by TIM NEAL, Global Director of Buildings for Arcadis | March 3, 2015

Rapidly changing commodity prices, stuttering economies and unpredictable currency fluctuations, 2014 was both an interesting and challenging year for the global construction sector.  But, with a new year now upon us, what does all this mean for costs and, more importantly, what does 2015 have in store?

We recently published our International Construction Costs report that ranks 43 countries across the globe in terms of their relative costs of building.  Significantly, the results demonstrate the extent to which the rather patchy economic recovery is affecting relative costs in many Western markets, while comparatively low costs in major Asian markets are encouraging increased investment.

In fact, one of the major reasons behind construction cost fluctuation is in the form of currency devaluations relative to the pound and the American dollar.  Clearly, this decline in valuation makes for a much more competitive market, ensuring the likes of Japan are now cheaper to build in than USA.  Significantly, this is also the case across a number of other Asian countries such as Singapore, Malaysia and, to larger degree, in India.

Evidently, this may not come as a massive shock to many, with more established markets seeing price increases.  However, with the construction industry one of the fundamental pillars of wider economic growth, all eyes will be on the sector to see whether it can deliver the requisite amount of residential and commercial space in the world’s key economic centres.

Clearly, this isn’t an easy situation to predict, but as we look ahead to a new year, what can we expect for the coming 12 months?  First and foremost, with the recent drop in oil prices taking many by surprise, we expect commodity prices to remain reasonably low throughout the year which, in turn, will limit global cost inflation. That said, much will also depend on the impact of ongoing Russian sanctions and the persisting political instability in the Middle East. The consequences of these events could well be felt in markets in every part of the world.

The author is the Global Director of Building at Arcadis. This article first appeared on the Arcadis blog.

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