The global economic recession undercut construction costs worldwide, according to London-based international project and cost-management firm Gardiner & Theobald Inc. in its eighteenth annual survey of international costs conducted exclusively for ENR. G&T’s survey covered 50 countries.

In Europe, 12 out of 20 countries reporting construction-cost figures for 2009 experienced deflation averaging 8.3%. Of the remaining eight European nations, construction inflation averaged a modest 2.2%. That matched last year’s average inflation rate for the group, when only four countries reported falling costs. In 2007, construction inflation in Europe averaged 4.6%.

The largest price declines were recorded in Eastern Europe with building tender prices in 2009 falling 17% in Slovakia, 15% in both Croatia and the Czech Republic and 12% in Bulgaria. But hardest hit was the former Celtic Tiger: In Ireland construction costs tumbled 11%, following declines of 10% in 2008 and 4% in 2007, according to G&T.

The recession’s impact was less severe in other parts of the world. Among 13 countries in Asia, the Middle East, Africa and Latin America, which reported construction inflation numbers for both 2008 and 2009, costs increased an average of 8.6% last year but only rose 2.6% this year.

In Hong Kong, construction costs in 2009 declined 8.3%, following two years of double-digit gains. Costs also fell 0.7% in Japan this year, according to G&T. In Shanghai, costs rose 1.5% in 2009, which was down from 7% gains in both 2008 and 2007.

India’s growing economy helped to push construction costs up 14% this year, one of the few double-digit increases reported by G&T for any country in 2009. However, even that 14% hike was down from increases of 16% in 2008 and 19% in 2007, according to G&T.

In the U.S., G&T’s offices reported cost declines for this year of 9.1% in New York City, 8.5% in Seattle, 8.3% in Washington, D.C. “But, unlike Europe, where costs are still falling, we believe that we are at the bottom of the market in the U.S. and that costs will be flat over the next 12 months here,” says Andrew Mann, who runs G&T’s U.S. operations.

Global Roundup

Solvency concerns about one of Dubai’s biggest projects unsettled global stock markets late last month, but “the money started drying up a lot earlier,” says Jeff Higgins, G&T’s local partner. For about the last six months, “everyone in construction and development has been very cautious,” he adds.

In oil-rich Abu Dhabi, investors are reviewing business plans in view of events in Dubai, says Higgins. The market is “fine” and becoming more competitive as international construction firms seek alternatives to Dubai. Construction costs are coming down to “more reasonable levels, after a period when everything was in short supply,” says Higgins.

Private investors in Qatar are treading water, unsure of how the market will develop, says a local executive, who asks not to be named. He estimates construction costs to have fallen 20% to 25%, partly because of a sharp fall in steel prices. “It’s a client’s market now,” he says.

Across Europe, construction costs have generally fallen, though Germany seems to buck the trend. “We had expected a reduction in construction costs [there]. That has not happened because of the amount of injection of public funding,” says John Atkins, of cost consultant E.C. Harris’s office in Düsseldorf. Commercial construction has been “very badly hit,” but public building has helped plug the gap, and infrastructure work is relatively abundant, says Atkins. Contractors remain active on stimulus work, but they are more available than they were last year. At that time, “We had real problems getting contractors to price work,” he says.

The U.K. is among the last major economies in Europe to find a way out of recession. The fall of the British pound relative to the euro has pushed up the price of continental European imports, encouraging contractors to shop at home. With costs generally down 15% to 20% from last year’s peak, investors with money now see the market “as good in terms of price,” one local contractor.

Like the U.K. in general, the Irish Republic is suffering consequences of a real-estate and bank-lending splurge. Construction has undergone the “most severe contraction in the last 30 years,” says Kevin James, G&T’s managing director in Dublin. “There is a view that tender prices are back to 1990-2000 levels.”

Having bid leanly, contractors are becoming tenacious about claims. “It’s more difficult to agree to the cost of [change orders],” he adds.

Construction deflation also has hit Eastern Europe. Moribund markets in Poland have led to a “substantial downward trend” in costs, says Jan Holyst, G&T’s partner in Warsaw. But, with “one or two [building] schemes” now starting, he says he is beginning to detect potential signs of recovery.

In the Czech Republic, “Contractors are extremely hungry for work,” says Chris Gunn, G&T’s local principal. “We have seen prices down 20% and much more in some sectors below 12 months ago,” he adds.

Hungary’s stimulus package is buoying up public projects, especially in infrastructure. But the private sector has “very weak demand,” says Tibor Stahl, E.C. Harris’ country manager.

“There has not been much movement yet” on bid costs, adds Stahl, who says he is bullish about market recovery next year. “The hardest part is going to be in the next half year,” he says.

But inflation still continues in emerging economies. In South Africa, for example, construction inflation has been slower than general cost rises of 5% to 6%, says Calvin Setzkorn, a partner in Schoombie Hartmann, Pretoria. “For next year, I see construction values tapering off quite strongly,” he adds.

As preparatory work now ends for the 2010 World Cup soccer tournament, construction bidding has become “very keen,” says Setzkorn.