Over reliance on China and over stretching to blame for diverging construction market, report says
New research has shown that the global construction industry is diverging, as some markets are over stretched while others over-rely on China.
The International Construction Market Survey 2016, from Turner & Townsend, analyses input costs such as labour and minerals in 38 global markets, and examines the average construction cost per m2 for commercial and residential projects.
The research shows that average construction costs in Zurich are the highest in the world, coming in at $3700 per m2, with prices also rocketing in New York and London, at $3650 and $3550 respectively.
San Fransisco and Seattle, two “hot” markets, look to be on a big increase over the last year as prices are now at $3400 per m2 (San Francisco) and $2800 per m2 (Seattle). The research warns that prices in Seattle will also increase by around 8 per cent due to competition for tenders.
Looking at the other end of the scale, Beijing’s prices fell by 10 percent following the previous year’s fall of 5 percent.
Steve McGuckin, Global Managing Director – Real Estate, Turner & Townsend, believes that a heavy reliance on China is to blame, “Two macro-economic factors – the sharp fall in oil prices and China’s slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market.
“Some regions are now facing acute overstretch, with construction demand outstripping what the industry is able to supply. Meanwhile in markets with a heavy reliance on either trade with China or on commodities exports, both demand and levels of investment have fallen. He said.
McGuckin also believes that contractors and clients can do more to work through this downturn in the market; “In overstretched markets both contractors and their clients must take urgent action to improve efficiency and keep cost inflation in check, while those operating in subdued markets should seize the opportunity to strip out waste and get the skills mix right for when demand returns.
“While advances in technology like Building Information Modelling (BIM) and modular construction can help, efficiency improvements of the scale required will only be achieved if the industry evolves - and develops leaner, more collaborative ways of working across the supply chain.” He said.
France to invest €1.8bn in Egypt’s infrastructure
France will invest a total of €1.8bn into Egypt’s infrastructure focusing specifically on upgrading the Cairo Metro, building a railway to Sudan, and developing water and energy schemes. Officials have called the investment a “major boost to bilateral cooperation”.
The Cairo Metro
Included in the financing is a concessional government loan of around €800mn to upgrade Line 1 of the Cairo Metro, introduced in the 1980s. The financing will pay for 55 trainsets for the line and is provided by the French engineering company, Alstom.
Line 6 is also due to be upgraded using further state-guaranteed loans worth up to €2bn. Bruno Le Maire said that this would be negotiated over the next six months. France and Egypt have worked in close cooperation ever since Abdel Fattah al-Sisi became president in 2014, despite differences over human rights and strong criticism of Egypt by rights activists and some foreign states.
Nine more projects over the next half a decade
A further €1bn from France’s development agency, Agence Française de Développement (AFD), aims to cover a range of other projects over the next half a decade.
These projects include a railway line between Aswan, southern Egypt, and Wadi Halfa in Sudan, as well as several projects in the renewable energy and water purification industries. Bruno Le Maire, France’s Finance Minister, said Egypt was a “strategic partner and commercial dealings with it would be developed. France will substantially increase its direct exposure to Egypt, becoming the first counter-party for government to government loans,” he said.
According to Le Maire, the AFD will also €150mn to support the construction of a universal health insurance programme. French contractors such as Vinci and Bouygues have a long history of working on the Egyptian capital’s underground system.
Talking about the relationship between France And Egypt, Le Maire concluded: “France will substantially increase its direct exposure to Egypt, becoming the first counter-party for government to government loans”.