Construction costs are set to rise throughout most of the world as demand from stimulus spending and disruptions to global trade are leading to shortages of materials and skilled labour, the latest report has found.

In the 2021 edition of its International Construction Market Survey, project management consultancy Turner and Townsend analysed building industry conditions and costs across 90 markets in 45 countries.

Overall, it found that conditions are improving as the world moves into COVID economic recovery.

Whereas 56 of the markets surveyed are warming up, only five are cooling.

Moreover, whereas only 38.9 percent of markets are either cold (6.7 percent) or lukewarm (32.2 percent), more than six in ten are warm (50 percent), hot (10 percent) or overheating (1.1 percent).

However, the report found that cost pressures are evident across the board.

Whereas eighteen of the markets surveyed saw costs decline over the past twelve months, costs are expected to rise across every market this year.

Meanwhile, cost escalation of ten percent or greater is expected in eleven markets this year – a situation which is expected to intensify as construction ramps up in 2022.

In developed regions, the most significant pressures are evident in North America followed by Australia/New Zealand.

Across North America, Turner & Townsend expects construction costs to rise by close to four percent each year for the next three years.

Cost escalation is likely to be particularly evident in Montreal, Ottawa, Chicago, Mexico City, San Francisco, Tampa and Seattle, it says.

In ANZ, cost escalation is expected to increase from 0.5 percent in 2020 to 3.6 percent and 3.2 percent in 2021 and 2022 before easing back to 2.4 percent in 2023.

In the developing world, things are worse.

Across Africa, costs are expected to surge by 8.0 percent in 2021 followed by further increases of 5.8 percent and 4.2 percent in 2022 and 2023.

Over those same years, costs in South America are expected to rise by 7.9 percent, 4.9 percent and 4.6 percent.

According to the report, this will be driven by multiple factors.

First, demand is surging as government pour stimulus money into public infrastructure, consumers reallocate money previously dedicated to services and travel into new homes and home renovations and soaring e-commerce activity is driving a greater need for data centres and warehouse facilities.

Next, global supply chains are being affected by disruptions to manufacturing and shipping.

On manufacturing, COVID requirements have forced many product makers to operate at a restricted capacity.

Whilst output will increase as workers return, the report says it will take time to fully rebuild production capacity – especially where facilities have shut down.

On shipping, a severe shortage of containers has emerged amid a combination of travel restrictions and a record volume of freight movement driven by soaring e-commerce demand.

This is leading higher shipping prices, longer delivery timeframes and constrained material supply.

These problems are being further exacerbated by delays in offloading ships due to COVID restrictions.

In some cases, the report says the cost of shipping containers has quadrupled.

All this is leading to longer lead times and higher material prices.

In some markets, Turner and Townsend says prices for structural steel beam, reinforcement bar, softwood timber and copper pipe have risen by up to 40 percent year-on-year.

Meanwhile, labour costs are rising amid a shortage of skilled professionals and tradespeople.

Of its 90 markets analysed, Turner & Townsend said there is a shortage of trades in 58 markets whilst only 9 markets had a surplus of labour.

Particular shortages are evident for Group 1 tradespeople such as plumbers and electricians.

In the US, Turner & Townsend reports that average construction wages across San Francisco, New York and Chicago have risen by 15.6 percent, 7.0 percent and 8.0 percent since its 2019 survey.

Over that same time, average hourly wages have risen in Australia/New Zealand by around 20 percent in US dollar terms in Auckland from $US39 to $US47 and by 14 percent in Melbourne from $US64 to $US73.

In Europe, meanwhile, Turner & Townsend reports that wages in US dollar terms have risen by 26 percent in Continental Europe since its 2019 survey and by 18 percent in the United Kingdom.

(Note: aforementioned increases are quoted in US dollar terms. Given that the Greenback has declined in value by roughly five percent over the past two years, the actual percentage increase in Europe and ANZ will be less severe when compared with percentage increases quoted above for these markets once currency fluctuations are stripped out and these are expressed in local currency terms.)

This situation could worsen in coming years.

Across almost all markets in Australia and New Zealand, Turner & Townsend expects further deterioration in skilled worker availability.

A similar story will play out across many parts of North America, it adds.

Largely speaking, the shortage of labour is being driven by the volume of work which is taking place.

This is being further exacerbated in several countries by a lack of migrant worker availability.

Overall, the survey found that Tokyo was the most expensive place to build followed by Hong Kong, San Francisco, New York City and Geneva.

Across the four-building types of CBD offices (up to 20 floors medium – A grade), large shopping centres including malls, large warehouse and distribution centres and medium standard townhouses, average build costs in Tokyo come to $US4,001.50 per square meter.

Across ANZ, Auckland, Christchurch, Sydney, Melbourne, Brisbane, Perth and Adelaide came in at around the middle of the pack at 39th, 42nd, 43rd, 45th, 51st, 53rd and 54th place respectively.

Average build costs across the four types ranged from $US2,069.40 per sqm in Auckland through to $US1,515.90 per sqm in Melbourne.