Australia has the fourth highest construction labour cost of all countries worldwide, the latest study has found.

But the nation remains only a moderately expensive market to build overall and is anticipating a lower level of cost escalation this year and next year compared with other markets.

In its latest International Construction Market Survey, global professional services consultancy Turner& Townsend has analysed construction costs for office buildings, hotels, industrial facilities, retail outlets and residential apartments across 88 cities around the world.

All up, it found that San Francisco is the most expensive city in which to build globally.

Over the five building types, the US city has an average construction cost of $US4,279 per sqm.

This is followed by Tokyo ($US 4,655 per sqm), Osaka (Japan) ($4,559 per sqm), New York ($4,517 per sqm) and Geneva (Switzerland) ($4,332 per sqm).

In Australia, the survey found that the nation has expensive labour but remains mid-range in terms of costs overall.

On labour specifically, the report found that costs across Australia reach an average of USD$75.5 per hour.

That makes us the fourth most expensive construction labour market behind Switzerland (USD$118.1), Austria (USD$77.7) and the USA (USD$77.1).

In terms of overall costs, however, our most expensive city in which to build (Perth) comes in only 39^th in cities worldwide with an average build cost of $US 2,821 per sqm across the five building types.

This is followed by Sydney, Melbourne, Brisbane and Adelaide in 41^st, 47^th, 49^th and 53^rd place respectively.

Whilst local cost pressures continue to build, meanwhile, cost escalation in Australia remains modest compared with that overseas.

Overall, Turner & Townsend expects cost escalation across Australia of 8.0 percent in 2022 and 5.5 percent in 2023.

This represents the lowest rate of cost escalation for any global area in the survey.

(Perth’s status of Australia’s most expensive market follows cost escalation of 14.0 percent in that city throughout calendar 2021. This is expected to be followed by cost increases of 7.0 percent in 2022 and 4.0 percent in 2023.)

Although the most expensive city in Australia in which to construct commercial and multi-residential buildings on a square foot basis, Perth is only the world’s 39th most expensive construction market overall.

Speaking about Australia, Anooj Oodit, Managing Director ANZ and Asia for Turner & Townsend, says cost challenges are likely to continue going forward.

“All markets in Australia are expected to get warmer over the next 12 months. Brisbane and Perth markets are currently hot, while Sydney, Melbourne and Adelaide are warm,” Oodit said.

“Skills shortages, construction cost inflation and long lead times are some of the biggest challenges facing Australia’s construction market.

“Residential construction is strong across the country, resulting in local supply chain constraints and bottlenecks in most markets. Recent wet weather events in Brisbane and Northern New South Wales have placed additional pressure on labour shortages in these states.”

“Perth has become the most expensive market to build in the country. It is suffering from a skills and materials shortage attributed to the reduction in interstate and international skilled labour migration, which is compounded by increased demand because of the government’s multisector stimulus drive. This is increasing cost, time and quality pressure in the construction market with significant volatility being experienced in civil, concrete and steel prices with cost increases up by 40 percent for specialist trades.

“A heated local market is exacerbated by strain on tier 1 and tier 2 builders due to COVID-19 and other financial pressures, which has led to less competitive market conditions. Rising material costs are postponing some projects as recent tender returns reflect higher steel and concrete prices, challenging the feasibility of both current and projects at the design stage.”

“Material shortages are also lengthening the anticipated project durations and increasing costs. Delays and allowances for temporary shortages need to be made which is a shift from pre-COVID-19 when just in time delivery to site and procurement models dominated.”

(At $US4,729 per sqm across offices, retail outlets, industrial facilities, hotels and apartments, San Francisco is the world’s most expensive place in which to build. Construction demand is continuing to be led by increasing requirements for new mixed-use real estate from Google, Apple, Facebook and other tech companies throughout the Bay Area. Housing demand in this location also remains at an all-time high. This is led partly by projects delayed during the pandemic, but also by the acute shortage in housing stock. The rate of development is especially high on the Peninsula and in San Jose, with Google, for example, delivering residential buildings as part of a corporate drive towards meeting high affordable housing demand.)

The survey comes as the construction sector worldwide is facing costs and delays.

According to the report:

• 38 of the 88 markets surveyed experienced overall cost escalation of greater than 10 percent throughout calendar 2021. This compares with only 11 markets where cost escalation was excepted to reach or exceed this level when the survey was conducted at this time last year.
• In 2022, cost escalation of 10 percent or greater is expected in 27 markets before pressures are expected to ease in 2023.
• 94 percent of respondents report a blowout in lead times. More than one-third (36.4 percent) of respondents report an increase in lead-times of five weeks or more.
• 57 percent of survey participants say that supply chain disruption has had either a high or significant impact over the past twelve months.
• Overall skills shortages are evident in 70 percent of markets.