微密圈

01 / Introduction

Global economies bounced back strongly in 2021, even as outbreaks of covid continued to disrupt supply chains around the world. Overall, world GDP expanded by 6.1% according to the IMF, a marked contrast to the near 5% contraction recorded in 2020. However, the recovery was far from painless. The story of international construction markets in 2021 is a near-universal tale of resource constraint, disrupted delivery and rising prices. Clients that set out to 鈥渂uild back better鈥� found themselves struggling to deliver their programmes.

There were many triggers for the difficult market conditions that were experienced across global markets. Ultimately a combination of reduced inventory and stretched supply chains in all markets set off a sequence of mostly unrelated problems that combined into the biggest products and materials squeeze in 30-40 years.

Sky-high iron-ore prices, record container rates, volatile energy prices and shortages of key components such as microchips were all symptoms of wider problems caused by the simultaneous reopening of developed economies. Construction was more exposed to the rebound than many sectors due to buoyant markets in infrastructure, new homes and home improvement. Arcadis鈥檚 international construction costs (ICC) index showed double-digit inflation across many markets, with particularly high increases in the US and some parts of Europe including Germany.

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Looking forward, how should the industry respond? High prices and the increased risk exposure triggered by the Ukraine conflict are likely to dampen demand, particularly in the price-sensitive domestic market. However, there is sufficient investment support from the public sector and infrastructure to maintain workload at historically high levels.

Smarter working, focused on delivering more value with less labour and materials resources, has emerged as the key post-pandemic productivity challenge for the construction industry. Whether by automating aspects of design and installation through automation, by reducing material requirements through the rationalisation of standards, or by the elimination of avoidable waste, the lessons of 2021 are that clients cannot afford not to challenge current ways of working.

02 / The cost index snapshot

The Arcadis ICC index for 2022 covers 100 locations. The data was collected in the fourth quarter of 2021. Projects delivered in accordance with local specification standards are compared on the basis of a currency conversion to US dollars.

London, Geneva and Oslo are the three most expensive locations in the index. New York and San Francisco are also in the top 10. Munich is a new entrant, ranked eighth, and Hong Kong and Macau are ranked ninth and 10th respectively.

Three main market trends have determined changes in rankings throughout the ICC index:

• Strengthening of the US dollar against most major currencies 鈥� this trend supported relative prices in markets that have a US dollar peg, including the Gulf States, Hong Kong and Macau.
• High (10%-plus) inflation in many markets including the US, Germany, Singapore and the Iberian peninsula, which resulted in significant movement of cities up the index.
• Low (sub-5%) inflation in Australia, Hong Kong and the Gulf States resulting from a slow recovery, triggering some downward movement 鈥� particularly for cities in Australia and New Zealand which typically fell 10-15 places in the index.

The top cities in the index, London, Geneva and Oslo, were not exposed to particularly high levels of inflation in 2021. However, historically high costs in these locations linked to specification standards and procurement practice mean they remain at the top of the ICC index.

The biggest movers up the index in 2022 are smaller US cities, particularly locations associated with lower costs in the southern and central states of the US. Denver, for example, moved up 14 places in the overall rankings.

The upshot of the analysis is that US dollar-denominated investors have secured further competitive advantage during 2021 as a result of the strengthening of that currency. With US construction markets running very hot as a result of the rapid recovery and federal investment programmes, investors may choose to look overseas for opportunities, providing additional support for commercial and residential construction across many markets.

Figure 1: International Construction Costs Index 2022

03 / Regional analysis

US

The US construction market was worth $1.5tn in 2021. Recovery from covid-19 was mixed during that year. Uncertainty caused by covid-related restrictions triggered a decline in commercial workload, and the passing of the new bipartisan infrastructure law was delayed until November 2021. Infrastructure workloads remained steady, supported by state- and city-level recovery initiatives such as the six-year $45bn Reinvest Illinois Capital Plan. By contrast, the US housebuilding sector had its busiest year since the global financial crisis, with over 1.7 million residential permits being issued, up 25% compared with 2019.

Even though overall growth in construction activity was modest, the US experienced some of the highest inflation recorded in the ICC survey. In part this was due to the considerable strain that the booming single-family housing sector created, triggering problems such as a global shortage of structural timber. Almost every project was exposed to these problems, requiring extreme measures including early design freezes and accelerated procurement.