Global real estate construction faces slowdown


Real estate development across the world faces a double threat of high inflation and higher cost of lending, as governments raise interest rates.

Global construction activity is experiencing a slowdown as appetite for real estate investment is curbed by a combination of high inflation, labour shortages and rising interest rates that are acting as barriers to project finance.

The latest Turner & Townsend International Construction Market Survey 2023 shows construction sector confidence falling, with high costs starting to impact market appetite. From a survey of 89 global cities, the US dominates the rankings of the most expensive places to build, with six US cities in the top ten. New York is the most expensive market, with an average build cost of $5,451 per square metre and San Francisco following closely behind on $5,200.

These figures have been fuelled by the strong US dollar, but also the impact of Bidenomics – a series of US policy interventions designed to stimulate growth in advanced manufacturing and green technology. The report points to the impact on the president’s Inflation Reduction Act, which focuses on supporting green industries, as driving investment in secondary markets across the US.

Switzerland and Japan continue to be expensive countries in which to build. Geneva ($4,662 per square metre and Zurich ($4,653) place third and fourth respectively with Tokyo ($4,576) and Osaka ($4,497) ranking in fifth and sixth. Both Hong Kong ($4,292) and London ($3,879) have dropped out of the top ten ranking for the first time, overtaken by US markets.

The Turner & Townsend data indicates falling sector confidence worldwide in the face of continued cost increases, fears of insufficient credit availability and a persistent labour crisis, with 74.2% percent of global markets show a ‘skills shortage’ in the report.

As many established markets experience sustained pressure, emerging regions including India, Indonesia and Vietnam are forecast to become hotspots for construction activity, driven by their rising populations, economic growth and strong pipelines of multi-year projects.

The best performing sub-sector globally remains industrial, manufacturing and distribution, fuelled by the e-commerce boom, and newly restructured and re-shored supply chains. Data centres also remain a significant growth area as the digitalisation revolution continues to spread and evolve around the world.

Neil Bullen, managing director, global real estate, at Turner & Townsend, said: “The global real estate market and the construction industry which supports it is being weighed down by inflationary headwinds and worldwide skills shortages. Even as interest rate rises start to bring inflation down, we are seeing the knock-on impact of higher borrowing costs for private investment in construction.

“While established markets are highly pressured, newer emerging locations are increasingly appealing for investors – whether that is secondary cities within the US, or growing economies in India and south east Asia.

“In either case, keeping close to supply chains is critical to understand capacity, benchmark costs and de-risk investment. Real estate clients need to look holistically at the construction ecosystem to identify areas of innovation in build processes and ongoing operations that improve performance.”

Click here to download the Turner & Townsend International Construction Market Survey 2023.