International construction market survey 2016

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Comparing construction costs It is important to compare construction costs between countries to inform expansion decisions. It can also enable productivity comparisons, highlighting how different practices and tools such as BIM can improve design and delivery. Opportunities to improve the efficiency of the construction sector and reduce costs are also opportunities to grow the global economy faster. Here we look at the advantages and disadvantages of three methods of comparing construction costs using an example building type: Central Business District (CBD) offices – high-rise prestige. Method one: convert to a single currency such as USD or euros This is the most common means of comparison, useful for a multinational organisation paying for projects in its home currency. Advantages ▪▪ Easy to understand and visualise. Gives the cost of typical building in each country. ▪▪ Disadvantages ▪▪ A change in the exchange rate makes a huge difference: if a particular currency is strong compared to the base currency, the cost of construction looks expensive. ▪▪ Is not a reliable indicator of relative costs and efficiency of construction between countries. Figure 10: CBD Offices – high-rise prestige using a single currency (USD) exchange rates 8,000 6,000 4,000 2,000 0 Bangalore Moscow Johannesburg Istanbul Warsaw Beijing Nairobi Kampala Kuala Lumpur São Paulo Kigali Muscat Seoul UAE Singapore Santiago Toronto Brisbane Munich Melbourne Amsterdam Doha Paris Northern Ireland Scotland Perth Dublin UK central Hong Kong UK north UK south Sydney Zurich Houston London Seattle San Francisco New York City Method two: Purchasing Power Parity (PPP) The PPP measure shows costs in relation to cost of living in the country. It indicates the construction cost per square metre in the local currency, relative to the costs of a basket of construction materials and labour. The PPP cost of a particular building type is calculated by dividing the cost in m2 in local currency by the PPP coefficient. A lower PPP cost generally indicates more efficient construction (see page 82 for more detail). Advantages ▪▪ Leaves exchange rate out of the equation. Useful for governments, policy-makers and researchers to compare costs and efficiency with other countries. Disadvantages ▪▪ For a global firm looking to build overseas, it can be more convenient to look at cost in its home currency. ▪▪ The cost of the basket of goods ignores contractors’ margins, labour productivity and preliminaries. 80 Turner & Townsend
Figure 11: CBD offices – high-rise prestige using PPP 6,000 4,000 2,000 0 Bangalore Johannesburg Istanbul Moscow Toronto Kigali Melbourne Brisbane Kampala Zurich Kuala Lumpur Warsaw Singapore Perth Nairobi Munich New York City São Paulo Seoul Amsterdam Beijing Paris Dublin UK south Scotland Seattle UK central Sydney San Francisco Hong Kong UK north UAE Houston Muscat Northern Ireland Santiago London Doha Method three: location factors Location factors extend the basket of goods approach used in method two (PPP) by adding labour, productivity, market conditions, contractors’ preliminaries and margins. A similarly specified building constructed for USD100m in London (location factor 100) should cost USD84m in Toronto (location factor 84) at the exchange rate as of the first quarter of 2016. Advantages ▪▪ Useful for a company considering a complex investment in several locations and wanting to know the cost in a single currency. ▪▪ Will show the difference in cost between countries of buildings built with similar specifications and inclusions. Disadvantages ▪▪ As this method uses a common currency, it is subject to the same disadvantages as method one. ▪▪ In practice, local building codes, methods and specifications are different between regions. Figure 12: CBD offices – high-rise prestige using location factors in USD London = 100 140 120 100 80 60 40 20 0 Beijing Bangalore Warsaw Nairobi Muscat Moscow São Paulo Johannesburg Kuala Lumpur Santiago Kampala Istanbul UAE Seoul Kigali Doha Singapore Northern Ireland Munich Amsterdam Paris Scotland UK central UK north Dublin Hong Kong Brisbane Houston Perth Toronto Sydney UK south Melbourne Seattle London San Francisco Zurich New York City International construction market survey 2016 81
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International construction market s
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Foreword The past year has seen wid
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5newcomers 38 global markets £500b
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Redefining relationships with the s
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The ripple effect of China Followin
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The impact of currency Foreign exch
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Figure 2: Predicted construction ma
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Analysis Over the long term, constr
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Analysis Figure 6: Competition acro
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Figure 7: Typical preliminaries (sa
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Figure 9: The cost of labour Toront
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International construction market s
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International building costs, in 20
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Page 31 and 32: International building costs, in 20
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International construction market survey 2016

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