Building costs in Johannesburg vs other major cities

Despite the headwinds facing the world economy, the global construction sector entered 2019 with significant momentum, having seen growth of 5% in 2018. And, according to the latest annual International Construction Market Survey (ICMS) by professional services company, Turner & Townsend, prospects throughout 2019 are expected to remain buoyant.

This latest overview of the construction market across six cities in Africa, including Johannesburg in South Africa, and another 58 cities around the world, reveals that 28% of markets are hot or overheating while a further 36% continue to warm up. Only eight percent are cooling, indicating widespread and continued growth in workload throughout the year.

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

“With construction projects generally spanning multiple years, once started, they are likely to keep going. There are also many instances where large projects, such as the natural resources sector, transcend economic cycles, often continuing during a downturn and delivering into a recovering market.

“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.

“Increasing activity and demand, in an already hot market, presents both opportunities and challenges for the construction industry and its customers. On one hand, 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 in many markets.

“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 said this will also put pressure on the price gap between markets, which have also widened. In 2018, the cost of constructing one building in the 10 most expensive markets was equivalent to delivering four buildings within the bottom 10 markets – and in 2019 that cost gap has grown to five.

In the ICMS report, in terms of construction costs, to identify the most expensive market to build, the average build cost in USD of six different types of construction was assessed: apartment high-rise, office block prestige, large warehouse distribution centre, general hospital, primary and secondary school, and shopping centre including mall.

This year San Francisco at $4 482.70 ousted New York ($3 958.30) from the top spot, having increased by five percent in the last year. Singapore has average construction costs of $2 100.10, closest to the average cost of Perth at $2 165.80, while the closest to the median cost of $2 272 is Auckland at $2 272.20.

The five highest cost cities remain San Francisco, New York, London, Zurich and Hong Kong.

Johannesburg’s average construction costs

In Africa, Johannesburg’s average construction costs are $952.20, while average 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 very high inflation in smaller countries or regions skewing the overall average excessively,” said Cerutti.

“On this basis, using this improved method, 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.

“Despite global construction growing by 5.0% during 2018, construction costs increased at a slower rate than in 2017. The principal reason for this comes from China and the USA, both of which experienced slower construction cost increases,” said Cerutti.

The survey also highlights the huge disparity between labour costs worldwide, with China, India and Africa having the lowest costs, while North America has the highest, with Australasia a little behind.

The highest labour costs recorded were in Zurich, where even a general labourer could cost as much as $99 per hour and a skilled electrician might cost $118 per hour. This is compared with Africa average costs of $6 per hour in Dar es Salaam; $4 per hour in Harare; $2 per hour in both Johannesburg and Kampala; $5 per hour in Kigali and $7.20 per hour in Nairobi.

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Building costs in Johannesburg vs other major cities