Years of supply chain disruptions and geopolitical volatility have driven nations to invest in critical infrastructure closer to home, reshaping global supply and trading alliances.
According to the 2024 International Construction Market Survey (ICMS) published by Turner & Townsend, nearshoring driven by these disruptions and tensions is spurring growth and investment in manufacturing across both emerging and developed markets.
From a survey of 91 global cities, the US continues to lead in building costs, with six cities in the top 10. New York remains the most expensive at $5,723 per m², followed by San Francisco at $5,489, and other cities like Los Angeles, Boston, Seattle, and Chicago.
Outside the US, Switzerland is the most expensive, with Zurich surpassing Geneva as Europe's costliest city to build in, averaging $5,035 per m².
London has re-entered the top 10 at US$4,473 per m², driven by capacity constraints and skill shortages. Japan has no cities in the top ten due to the Yen's depreciation, attracting more foreign investment.
Global construction cost inflation is projected to settle at 3.3% in 2024, with all regions expecting lower inflation than in 2023, enhancing project viability.
The US market is ripe with opportunities in life sciences, hyperscale data centres, and advanced manufacturing, bolstered by supportive policies. A potential Federal Reserve interest rate cut later in 2024 could further boost commercial real estate.
Emerging economies like India, Malaysia, Indonesia, Nigeria, Brazil, and Mexico are also benefiting from increased nearshoring, friend-shoring, and reshoring of manufacturing.
Overall, construction price inflation is decreasing, with reduced forecasts for 2024 compared to last year's predictions. Africa leads in construction cost inflation at 5.7%, while North America sees a drop from 6.1% in 2023 to 3.8% in 2024.
A major driver of global inflation is the scarcity of skilled labour, with 79.1% of markets reporting shortages, putting upward pressure on construction costs worldwide, said Turner & Townsend.
Cape Town vs Joburg
Propelled by rapid population growth, economic activity across many parts of Africa is accelerating, and investment in digital infrastructure, retail and commercial is increasing. However, significant hurdles to growth remain across the continent.
In South Africa, this is already translating into sustained investment which, when combined with a general inflationary environment, is creating cost escalation: in Cape Town and Johannesburg, average costs are forecast to increase by 6.8% this year, although this is a reduced rate compared to the 7.7% seen in 2023.
Cape Town is costlier than Joburg to build using an average of eleven building types, at $1,088.3 per m² vs $988.4 per m².
Demand for commercial space is a contributing factor. As expectations for the workplace increase, the cost to build a high-rise prestige office in the centre of Cape Town is now $1,284.1 per m², up from $1,265.1 per m² last year.
Recovery in the tourism sector is also fuelling activity. Building a five-star hotel now costs $1,629.0 per m² in Cape Town, and $1,549.5 per m² in Johannesburg.
Elsewhere, too, the opportunity to attract increasing visitor numbers is generating work. In Lagos, the cost to build a luxury resort is $1,923.0 per m².
Throughout the continent, the need for data centres to keep up with growing demand for IT infrastructure is also being recognised. Construction hubs include Kenya, Nigeria and South Africa. In Nairobi, the cost of data centre construction is US$8.49 per watt, according to our 2023 Data centre cost index, said Turner & Townsend.
Some clients are tackling the impacts of these rising prices by building data centres in bordering countries, where costs may be lower. For example, many developers are looking to Ghana, where construction is more affordable than Nigeria, though close enough for the Nigerian population to benefit from centres’ data capacity, the report said.
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