In its thirteenth annual survey of international construction costs conducted exclusively for ENR, the London-based international project and cost management firm reports that construction inflation increased on average 5.2% in 23 nations in Europe, Asia and the Middle East. This is up from a 3% rate reported for the same group of countries in 2003 and 2.3% in 2002. In the U.S., G&T’s survey shows construction costs in New York City climbing from 2.4% in 2004 to 12% this year. In Western Europe, construction inflation rose from 2.5 to 3.7% during the same period.

Contractors in Australia and New Zealand also struggled with rising material costs in 2004. G&T reports that construction costs in New Zealand jumped 14% this year, after averaging annual increases of less than 2% for the previous seven years. In Australia, construction inflation rose from 4% in 2003 to 7% this year, according to G&T.

Some of the largest cost increases surveyed were in Eastern Europe, where construction inflation nearly doubled to 6% in 2004. These figures exclude Romania, which is coming back into line with inflation rates in other European countries after suffering cost increases of 34% in 2002 and 40% in 2001. G&T estimates that construction inflation in Romania will drop to 9% this year.

"Bucharest is booming," says Doug Nobel in the local G&T office. Prices are edging up but remain as much as 40% lower than in Western Europe, he says. Local contractors manage with prices some 20% lower than foreign rivals. But the gap is narrowing "only in the sense that international companies are becoming more competitive," he adds.

Summary - New ‘Rules’ Favor Inflation
Forecast - Escalation Slows But Costs will Remain High
Steel - Demolition Firms Trim Bids to Get at the Valuable Scrap
Equipment- Prices Make Largest Gains in Over a Decade
Compensation - Design Firms Put Lid on Pay, Bonuses
International Residential and Retail Building Costs
International Commercial and Industrial Building Costs

In South America, Argentina is back in the grips of double-digit inflation after seeing minimal cost increases between 1997 and 2001. This year, G&T expects construction costs in Argentina to increase 25%, following annual gains of 20% in 2003 and 68% in 2002.

Overall, G&T expects the international inflation rate for construction to begin to ease next year. The 17 countries providing forecasts for 2005 predict building costs will increase 5% next year. The same group of countries reported a 7% increase in 2004.

Struggling with Steel

Higher steel prices had less of an impact on contractors in Europe than in the U.S. because concrete is the material of choice for much of the region, and the share of steelwork in a project’s cost is still small, report a number of sources. But contractors in Europe still had to cope with the global phenomenon of higher prices.

"All the companies are struggling to get raw materials to make steel," says Roberto Tallota, with E.C. Harris in Milan. Estimating the cost hike this year at 50%, "the...

fter years of hype, the reality of the huge Chinese economy could not be denied in 2004. For perhaps the first time, China became the main driver of international construction cost trends, replacing a role previously played by the U.S. and Western Europe. China’s economic engine helped reverse years of deflation for construction costs in neighboring Asian markets and its voracious appetite for raw materials sparked worldwide inflation for a broad range of construction materials. The U.S. market, where construction costs rose at a double-digit pace, was the hardest hit but inflation also posted large gains in many other countries, according to a survey by Gardiner & Theobald Inc.