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Construction is on the up

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Prospects for the sector remain buoyant

Despite challenges facing the world economy, the global construction sector entered this year with significant momentum, having seen growth of 5% last year.

According to the latest annual International Construction Market Survey (ICMS) by independent professional services company Turner & Townsend, prospects are expected to remain buoyant throughout this year.

This latest overview of the construction market across six cities in Africa, including Joburg, and another 58 cities around the world, indicates 28% of markets is hot or overheating, while a further 36% continues to warm up. Only 8% is cooling, indicating widespread and continued growth in workload throughout the year.

The survey indicates there is “considerable momentum” in the global construction sector which is helping to mitigate the effects of weaker, late-cycle economic growth, says Wendy Cerutti, associate director of cost management and South Africa ICMS specialist for Turner & Townsend.

“By 2020, there could be 24 markets described as hot or overheating compared with 18 today. This is based on the high number of locations where the survey indicates the market is getting warmer.”

She says increasing activity and demand in an already hot market presents both opportunities and challenges for the industry and its customers. Strong growth in construction will help support economic growth, reducing the potential of a major downturn. This could cushion some of the negative impacts on the sector and help maintain favourable conditions for business.

“The challenge is, as hotter markets become more overstretched, escalating construction costs and tighter labour markets will increasingly frustrate attempts to deliver projects to desired standards, cost and time frames.”

Cerutti says this will also put pressure on the price gap between markets, which has widened. Last year, the cost of constructing a building in the 10 most expensive markets was equivalent to delivering four in the bottom 10 markets. This year, that cost gap has grown to five.

To identify the most expensive markets in which to build, the report looked at the average build costs in dollars of six types of construction: apartment high-rise; office block; large warehouse distribution centre; general hospital; primary and secondary school; and shopping centre, including mall.

This year, San Francisco ($4 482.70, about R70 million) ousted New York ($3 958.30) from the top spot. London, Zurich and Hong Kong are the others in the five top-cost cities.

In Africa, Joburg’s average construction costs are $952.20, while costs in other African cities are Dar es Salaam $922.30, Harare $1 683.30, Kampala $967.30, Kigali $1 085.40 and Nairobi $738.40.

“This year we have prepared a weighted average construction cost inflation, weighting each country by its GDP, which removes the impact of high inflation in smaller countries or regions skewing the overall average excessively,” Cerutti says.

“On this basis, average global construction cost inflation was 4.9% in 2017, easing in 2018 to 4.2%. Using the same weighted average technique, we now expect cost escalation in 2019 to nudge down to 4.1% in 2019.

“Nevertheless, there are 20 markets where construction costs are increasing and are likely to be higher in 2019. In most cases the difference is quite minor – a matter of an additional 0.5% percent or 1%. In some cases, however, construction costs look set to jump a little more.”

The survey highlights the disparity between labour costs worldwide, with China, India and Africa having the lowest costs and North America the highest. The highest labour costs recorded were in Zurich, Switzerland, where a general labourer costs $99 per hour, compared to $2 in Joburg.

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