NEW research has ranked Edinburgh as the third most expensive UK city to build in, behind only London and Manchester.
Turner & Townsend has warned of ‘sustained pressure’ on UK real estate construction for the next year as the sector faces ongoing inflation, skills shortages and high interest rates.
The professional services firm’s International Construction Market Survey (ICMS) for 2023 examines conditions across nine major UK city regions – London, Manchester, Edinburgh, Bristol, Leeds, Birmingham, Glasgow, Newcastle and Belfast.
London remains the most expensive UK city in which to build with an average cost of £3,136 per m2. However, the capital has fallen down the global rankings and now lies outside of the report’s international top ten at 14th. This trend is reflected across the UK, with the next two most expensive UK markets, Manchester and Edinburgh, only ranked 30th and 32nd with average costs of £2,504 and £2,425 per m2 respectively.
UK markets have been overtaken by ‘exceptional growth’ in US cities such as Atlanta and Tampa, reflecting a strong US dollar and the impact of green subsidies in America.
Turner & Townsend said conditions in the UK remain highly pressured, with average construction cost escalation of 9.4% over the nine markets during 2022. This is expected to fall to 3.6% in 2023 as pressure on supply chains ease and demand falls, with higher interest rates increasing the cost of borrowing to finance projects.
Cost inflation is said to be being sustained by a ‘persistent’ skills shortage which pushes up labour costs, with total construction employment in Q1 2023 contracting by 1.9% on the previous quarter.
Martin Sudweeks, UK MD, cost management at Turner & Townsend, said, “Exceptional growth in US markets has seen a relative shift in the UK’s global ranking of the most expensive places to build. However, that shouldn’t be misinterpreted as a sign that the market has cooled. While the expectation is that the rate of cost inflation will ease in the next twelve months, the overall picture is one of high competition for labour and resources.
“Real estate clients need to be braced for high costs to be sustained for the foreseeable future, and plan accordingly. Staying close to the supply chain, monitoring vulnerabilities, and working on productivity will be essential to keep projects moving ahead.”
