The global recession’s vise grip on construction costs is starting to loesen in several countries, according to the London-based international project and cost-management firm Gardiner & Theobald Inc. The nineteenth annual survey of costs is conducted exclusively for Engineering News-Record. G&T surveys its 51 offices and affiliates worldwide.
Of the 28 countries reporting building cost inflation through 2010, all but two saw either a bump in inflation or an easing in de-escalation. Eastern Europe appears to be the hardest hit by the global recession, with four of five countries reporting declining costs for the second consecutive year. However, the declines were less severe, averaging 7.3% this year compared to a 12.6% decline during 2009.
In western Europe, building costs continued to decline in Ireland and the United Kingdom, but less sharply than the previous year. Not counting Portugal, which reported a whopping 13% jump in building costs, the average inflation rate for countries reporting increases rose to 2.2% from 1.1% last year.
In other areas of the world, inflation also started to make a modest comeback from the pounding it took from the recession in 2009 (see Asia story, p. 62). Building costs in Egypt bounced back 8.8%, after falling 25% last year. Cost in China and Japan also increased again, after falling in 2009. In New York City, building costs tracked by G&T held steady this year, following 2009’s 11.7% decline.
European construction is now a mixed bag, with some countries experiencing growth while others struggle to avert economic disaster. However, currency turmoil in the euro zone, caused by unsustainable government debt in some countries, is having little or no impact on construction prices, according to cost consultants in the region.
The Irish Republic’s recent bailout by European Union countries and the International Monetary Fund has created great uncertainty over construction prospects, says Kevin James of G&T in Dublin.
“Everyone is waiting” for the impact of the “unprecedented” $20-billion public spending cuts over the next four years, announced by the government last month, says James. Already, “infrastructure spending is all but gone,” he adds.
Contractors are bidding sub-economic prices to keep going. Sales are “down dramatically,” adds James. “Financial robustness of contractors is more important to some clients than the lowest price.”
Across the Irish Sea, the U.K.’s construction market “seems to be bumping along the bottom still,” says Gavin Murgatroyd, a G&T partner in London. Prices will be stable to negative in the first half of 2011 and are expected to rise in the second half, he forecasts.
Underlying inflationary pressures from rising commodity prices have “not really fed through yet,” adds Murgatroyd. That’s because contractors are bidding so keenly that “they are going into negative margins,” he explains.
In continental Europe, the construction market is generally slow, with some exceptions. German construction prices currently are rising, says Jürgen Bartels, a senior project manager with G&T in Berlin.
“Every company has a lot [of work] to do,” explains Bartels. Market conditions are similar in eastern and western Germany, but demand is hotter in larger cities, such as Hamburg and Munich, he adds.
In Poland, with public finances in relatively good order, “there is a lot of infrastructure work taking place [with] a lot of the money coming from the European Union,” says Jan Holyst, an analyst at G&T in Warsaw.
However, infrastructure work fails to compensate for severely depressed building-sector demand, adds Holyst. Polish bid levels “are very competitive at the moment,” he says. But with “glimpses of things maybe starting to pick up,” conditions are better than they were a year ago, he adds.
“[The French] have not really had a year of recession,” says G&T’s Chris Gilmore in Paris. “Government spending, which has always been the motor of the general construction market, has been reasonably resilient,” he adds.
Nevertheless, competition is stiff, with bid prices “in the region of 7.5% to 10% below budget,” says Gilmore. Large contractors are bidding low to “cover their overheads,” he adds. Professionals’ fees generally are increasing slightly but falling substantially in the private sector.
Sweden is also one of Europe’s better economic performers, says Anders Kivijarvi, chief executive of Stockholm-based cost consultant Bygganalys A.B. But “overall we had a decrease in the [construction] market in 2009 and a small decrease this year as well,” he adds.
The decline in Swedish residential construction has obscured the rise in publicly funded infrastructure work, adds Kivijarvi. But weak demand “has not had a big effect on costs because we are short of resources,” he adds.
With the notable exception of Poland, construction market conditions across Eastern Europe are tough. Hungary’s construction market, for example, remains “very depressed,” says Jim McDaid in G&T’s Budapest office. Few commercial building jobs are going forward, he adds. At the same time, residential construction is being hit by a wave of mortgage defaults.
Construction prices have dropped since 2008 but now are steadying, says McDaid. “Everybody has stripped out all the fat, all the profit and all the overhead that they can.”
How To Use the International Cost Survey
Comparing construction cost data among countries with vastly different economic, political and social systems poses several hazards of which readers should be aware. Due to constantly changing market conditions and fluctuations in exchange rates, the above data should be used for broad “comparative purposes only,” cautions Gardner & Theobald Inc., London. G&T compiled the international constuction-cost survey from its worldwide network of offices and associated companies. All costs were provided in local currency and converted to U.S. dollars using the exchange rates in effect on Dec. 9, 2010. The information on building costs includes contractors’ overhead and equipment costs.