Melbourne construction costs ranked top 20 in Arcadis International Construction Costs Index

Source: Arcadis -   


14 January 2016

Arcadis: The global financial centers of New York, London, and Hong Kong have been ranked as some of the most expensive cities in the world to build, with Melbourne ranking within the top 20, according to the International Construction Costs Index recently published.

The index, which analyzes the relative cost of construction across 44 major cities, finds that strong currency performance and significant resource constraints have seen these ‘world city’ locations command premiums of up to 60 percent compared with many European locations.

However, this price inflation comes at a cost, with the viability of important commercial and public sector schemes put at risk in these cities as prices continue to soar. Furthermore, rising costs and the falling value of currencies could restrict demand from emerging market investors in these areas, potentially triggering a shift in interest to alternative lower-cost cities in the longer term. 

As we saw throughout 2014, the main factor determining relative construction costs this year has been large exchange rate adjustments. This has affected almost all currencies relative to the dollar and sterling. 

Greg Steele, CEO Arcadis Australia Pacific commented: ‘’From an Australian perspective, the International Construction Costs Index highlights the fact that the world’s population is growing at an unprecedented rate. The Melbourne construction industry has been in decline the past few years, however we are starting to see an increase in demand for residential property, with a significant number of developments approved in recent months. Melbourne’s ranking is also indicative of the exchange rate adjustments which saw the Australian dollar fall in value relative for the US dollar by 30 percent in the last year’’.

Tim Neal, Arcadis Director of Buildings, commented: “When it comes to development, the world’s major financial centers have always commanded a substantial premium. But, the sheer scale of the demand-driven price increases we have seen this year in the likes of New York and London has been remarkable. Add to this, recent global currency shifts and it is plain to see why building in these locations can cost up to sixty percent more than many European cities. The problem that these cities could encounter, however, is that this rapid inflation may soon see many investors and even public sector bodies shut out as prices continue to spiral. 

“As we enter 2016, it is fair to say that we have another very interesting year in prospect. Commodities are continuing to fall in price, the Chinese economic slowdown is beginning to impact markets right across the world and many economies are at very different stages of recovery. With so many potential opportunities arising in recent months across newly-affordable markets, it is vital that investors and developers to do their homework.” 

The study, is a comparative cost assessment is based on a survey of construction costs in 44 locations undertaken by Arcadis, covering 13 building types. Its costs are representative of the local specification used to meet market need. The building solutions adopted in each location are broadly similar and as a result, the cost differential reported represents differences in specification as well as the cost of labor and materials – rather than significant differences in building function.  

Costs in local currencies have been converted into a common currency for the purpose of the comparison, but no account has been taken of purchase power parity. High and low cost factors for each building type have been calculated relative to the UK, where average costs for south east England = 100, using US dollar as the currency unit.  The relative costs plotted in the chart represent the average high and low cost factor for each of the 13 buildings included in the sample. Construction costs are current in Q2 2015. Exchange rates were current in October 2015.

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