According to a new industry survey, while construction still faces challenges, inflationary pressure is softening and stabilising costs are allowing investment flow in key global growth sectors.

Years of supply chain disruption and geopolitical volatility means many nations are investing in critical support infrastructure closer to home, reshaping global supply and trading alliances.

The International construction market survey (ICMS) 2024 report, from global professional services company Turner & Townsend, shows that while construction still faces challenges, inflationary pressure is softening and stabilising costs are allowing investment flow in key global growth sectors such as data centres, healthcare and advanced manufacturing.

From a survey of 91 global cities, the US continues to dominate the rankings of the most expensive places to build, with six US cities in the top ten. New York has retained its position as the most expensive market to build in for the second year running at an average cost of $5,723 per m², up 5% compared with 2023. San Francisco follows closely behind at $5,489. Los Angeles, Boston, Seattle and Chicago also feature in the top ten.

Outside of the US, Switzerland remains the most expensive country to build in. Zurich has surpassed Geneva to claim third place in the ranking – and the most expensive in Europe – with an average cost of $5,035 per m², up 8.2% on the year. Geneva averages $5,022 per m².

London has re-entered the top ten in tenth position, with an average cost of $4,473 per m². High costs in the UK are being driven by factors such as the growing capacity squeeze and skills shortages in the sector.

Japan no longer has any markets in the top ten globally, reflecting the impact of the depreciation of the Yen to a 34-year low, which is serving to drive increased interest from overseas investors.

The US market is teeming with opportunities in life sciences, hyperscale data centres and advanced manufacturing which has been galvanised by supportive policy setting. Commercial real estate is poised to rebound if the Federal Reserve starts to cut interest rates later in 2024, as is anticipated.

As well as major markets such as the US, key emerging economies are also set to benefit from the international trend for increased nearshoring, friend-shoring and reshoring of manufacturing. India, Malaysia, Indonesia, Nigeria, Brazil and Mexico are all seeing rising demand in the sector.

The data points to lowering construction price inflationary pressure overall and across the top ten. Turner & Townsend has modestly reduced its 2024 construction cost inflation forecasts compared with last year’s predictions. Construction inflation in most markets is driven by a backlog of projects, which are gradually moving forward as construction costs stabilise. This year, Africa leads average construction cost inflation at 5.7%, while North America dropped from 6.1% in 2023 to 3.8% in 2024.

A significant factor driving inflation worldwide is a scarcity of skilled labour. A staggering 79.1% of markets, representing 72 individual markets, reported skill shortages. This stands in stark contrast to just 9.9%, or nine markets, with a labour surplus. The remaining 11%, or ten markets, indicated a balanced labour market. This imbalance between supply and demand for skilled workers is putting continued upward pressure on construction costs globally.

Neil Bullen, managing director, global real estate, at Turner & Townsend, said: “The global real estate market is emerging from a challenging period of inflationary pressures, volatility and disruption. Our sector has proved resilient and a focus on building new approaches to procurement and supply chain development to drive efficiency and productivity is opening new opportunities across many markets.

“Accelerating digitalisation also presents huge opportunity, but this requires us to keep up with the demand for skilled labour and persistent shortages risk constraining potential growth. As interest rate cuts become an increasing possibility for many markets and pent-up investor appetite can be unlocked, capacity could be tested still further. Clients need to understand where labour bottlenecks may constrain their capital investment programmes and work collaboratively with the supply chain to understand how best to mitigate the risk to delivery.”