U.S. Ranks On Top as World’s Most Expensive Place to Build
When it comes to increasing construction costs—including labor and materials costs—the United States dominates rankings of the most expensive places in the world for real estate development. According to Turner & Townsend’s 2022 International Construction Market Survey, San Francisco ranks as the world’s most expensive market for construction, at $4,729/m2 (meter squared). Tokyo and Osaka came in second and third, respectively, with New York ranked fourth, Boston in eighth position and Los Angeles taking ninth place. Overall, nine U.S. markets placed in the top 20 when it came to construction costs.
Turner & Townsend analysts suggest that a stronger U.S. dollar, combined with supply chain disruptions (leading to more expensive materials) and increasing labor expenditures are why it costs more to build in the United States.
“In San Francisco, construction demand is continuing to be led by increasing requirements for new mixed-use commercial real estate from Google, Apple, Facebook and other tech companies throughout the Bay Area,” said John Robbins, Turner & Townsend’s Managing Director for the U.S. and North American Head of Real Estate in a statement. Meanwhile, on the east coast, New York is also ramping up demand for new apartment buildings and zero-carbon retrofits on existing buildings. “A common feature across both cities is the greater competition they face to retain skilled labor,” Robbins said.
Turner & Townsend also ranked real estate sectors driving growth, with industrial, manufacturing and distribution space taking the top spot. E-commerce growth combined with pharmaceuticals manufacturing increases is creating more demand for this space. Residential and transportation took second and third place. Interestingly enough, office development, which was in 15th place during 2021, rise to fifth place in 2022.
Meanwhile, the survey also focused on key construction challenges in 2022 versus 2021; the top three concerns were increasing construction costs, excessive lead times and labor shortages.
Nor is the situation likely to improve, with most markets anticipating more construction cost increases during the outlook period. “While we may see some cooling prices across individual materials as global supply-chain disruptions ease . . . prices could remain elevated,” Turner & Townsend analysts commented. “Other factors like skill shortages and high-risk market conditions suggest it may be unlikely to see overall construction costs fall in the near term.”
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