Inflation Cools in China, West Europe, U.S.
Construction cost escalation across the globe has been cooling in China, Western Europe, Australia, Japan and the U.S. Then there is Eastern Europe, which plays by its own rule book, one that has been rewritten by the integration of several eastern European nations into the European Union.
The average building inflation for 23 countries in Europe, Asia, the Middle East, Latin America and North America slipped to 5.6% from 6.2% for the same group of countries the previous year, according to London-based international project and cost management firm Gardiner & Theobald Inc. in its sixteenth annual survey of international costs conducted exclusively for ENR.
Six eastern European countries and Finland accounted for the most of the global construction cost escalation, with the average tender bid price tracked by G&T for this group of countries increasing 11% this year, compared to a 9% increase for the group in 2006.
Related Links: In other regions of the world inflation was more tame. For nine western European countries, excluding Finland, G&T reported an annual inflation rate of 3.5%, down from 4.8% for the same group a year ago. Likewise, eight nations in Asia, Africa, North America and the Middle East averaged construction inflation of 4.4% in 2007, down from 5.4% for the same group in 2006.
That group of statistics excludes two notable exceptions, which would have skewed the overall results. Construction inflation still is out of control in Argentina, where it increased 24% for the second consecutive year. In China, Hong Kong was an anomaly, with bid tender prices there rising 13.1% in 2007, compared to a 1.6% increase in Shanghai, according to reports from local offices of G&T.
Across Europe, construction price rises are beginning to be tempered by ramifications of the U.S.-led sub-prime home loan fiasco. “The credit crisis has definitely had an...effect on construction that would have been going ahead at some point next year,” says David Lees, in G&T’s Berlin office.
In the U.K., “there is some uncertainty, certainly in the commercial market,” notes Nick Rowe, a G&T partner in London. “We have seen some schemes put on hold.” At the same time the rising value of the Euro is pushing up import prices to the U.K. from continental Europe. But Rowe sees little effect of the weakening dollar on trans-Atlantic imports. “There’s not a lot of U.K. construction market procurement in the States,” he says.
In Poland, “a lot of projects aren’t going forward,” says G&T’s Jan Holyst, in Warsaw. “It has affected the market generally.” But Poland’s high demand for construction is boosting prices across the board, including steelwork, gypsum, cladding, rebar and concrete blocks, he says. Building inflation in Poland increased 12% this year after jumping 20% in 2006.
With contractors able to pick and choose bidding prices were “chaotic”, says Holyst. “Now there is a more sensible approach to tender levels...contractors are able to spread the workload and deal with the situation in a more responsible way,” he adds.
Booming construction also is beginning to lure Polish workers back from western Europe, especially the U.K. and the Irish Republic. “There is some evidence of a drift back,” says Holyst. Pay for site workers has risen by around 20% in the last year and by 10% to 20% for professional staff, he estimates.
A newcomer to the European Union, Romania also is experiencing a construction boom, says G&T's local executive Gavin Moore. “The Bucharest market has gone into overdrive,” he adds. As a result, bid prices have risen by up to 18% this year and good workers are becoming scarce. “Skilled Romanians have moved to Western Europe,” says Moore.
In London, “there may be a little less inflation, but outside London it continuing to rise,” says Rowe. “Contractors...are being hit by higher labor prices with demand outstripping supply,” he adds. With increasing labor demand in Poland “we are going to see a bit of a reverse migration,” he says.
German construction is continuing to pick up, says Lees. Labor is available though pay rates for semi-skilled and skilled staff have risen by 15% over the last year. This helped to push building inflation in Germany to 6.1% this year, up from 3.9% in 2006 and 0.6% in 2005.
After years of frantic construction in Dubai, construction costs continue rising by over 20% a year with staff pay going up by as much 100%, says Jeff Higgins, at G&T’s main office in the Emirates. Contractors are importing workers from the subcontinent “faster than they can build facilities for them to live in,” he adds. “Earlier this year we thought cost pressure would ease. But then you hear of other massive schemes....We don’t see inflation easing here.”