Many European cities experience a growing attractiveness for construction and investment in the world in which to build, according to the International Construction Costs Index published today by Arcadis, a leading Design & Consultancy firm for natural and built assets. The gradual recovery in the Eurozone and subsequent increments in construction costs have been counterbalanced by a depreciating Euro and as a result the market has not been affected by high inflations as seen in the UK and the US.
The index, which analyses the relative cost of construction across 44 major cities, finds that economic recovery and currency exchange rate fluctuations have triggered some big movements in the relative construction cost rankings. In addition the index points to very significant cost differentials throughout Europe with costs in locations including Athens and Lisbon at a 40 percent to 60 percent percent discount to that of south east England.
For the outlined cities London, Frankfurt and Amsterdam – although different local circumstances and dynamics – the research concludes remarkable similarity in the urban trend. The growing attractiveness of cities drives the residential markets, which on its turn creates a revival of the construction industry and the cost of construction. The trend is urban focused with some spin off to the region, where the ability to benefit declines with distance from the city.
A rebound of European investment is expected throughout next year, exemplified by the EC’s Juncker Infrastructure Investment Plan worth €315 billion. Recent GDP data has confirmed that the engines for the EU’s growth include Poland, the UK, Ireland, Spain and the Netherlands. France, Italy and Austria are showing signs of recovery. Over the next three years, the construction industry is expected to grow by an encouraging 2.3 percent per year in the EU.
The price inflation in the UK and the US comes at a cost, with the viability of important commercial and public sector schemes put at risk in these cities as prices continue to soar. Furthermore, rising costs and the falling value of currencies could restrict demand from emerging market investors in these areas, potentially triggering a shift in interest to alternative lower-cost cities in the longer term.
Meanwhile, throughout 2015, every construction market in the world saw the overall level of cost inflation restricted due to the well-publicized drops commodity prices. Particularly when it comes to oil, growing uncertainty over prices will inevitably have a long-term impact on the global construction industry.
“The European urban construction market is poised for growth due to the combination of several factors. Economic recovery, a relatively cheap Euro, EU investment plans all contribute to an interesting investment climate for international financial institutions looking for opportunities beyond traditional high cost inflation cities such as New York, London and Hong Kong,” said John Atkins, European Buildings Leader Buildings at Arcadis. “A city such as Amsterdam is likely to see costs rising steadily towards pre-crisis levels within three years. Frankfurt is supported by encouraging levels of growth in 2015. As mentioned before, it is interesting to see that the upwards construction cost trend is robust and predominantly urban, with some spin-off in the region.”
