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Construction Costs Rising in Emerging Markets

Online Retail—and Shortages of New Sites and

Development Finance—Limit Gains in Mature Economies GARY EMMETT*

Abstract: This article discusses some of the trends that are affecting construction costs of retail facilities around the world in 2013. Using data from Turner & Townsend’s various regional offices, it shows differences in retail-construction costs in a diverse selection of countries, and discusses the trends and underlying cost drivers in each region.

Retail construction is most active in emerging markets,

and these are the areas experiencing the largest increases in construction costs. These include China, India, Middle East, Eastern Europe, Russia and South America. Meanwhile the mature economies of Europe, North

America and Japan are seeing much lower levels of development, with refurbishment of the stock of aging centers dominating the market. The mature economies’ lack of growth reflects shortages of new sites, lack of finance and growth of online retail. In the mature economies, construction costs are increasing slightly at present, creating certainty of cost for those able to undertake new developments. These are the conclusions from the International

Construction Cost Survey 2013, scheduled to be published in September this year. This is an annual review of building costs, including materials and labor, in the countries where Turner & Townsend, a leading global program management and construction consultancy, has local teams. The report covers various building types including retail, residential, industrial, commercial, hospitals and schools. This article focuses on the cost of building two types of

new construction retail facility. These are large shopping centers, including enclosed malls; and neighborhood shopping centers, including supermarkets.1 Costs—which exclude end-user fit-out but cover the shell and core cost of the facility—are represented as rates per square meter (sq m) based on the gross internal floor area, where car parks and external landscaping are excluded.

* Senior Construction Economist, Turner & Townsend 1 The Turner & Townsend report also covers prestige car showrooms.

INTERNATIONAL COUNCIL OF SHOPPING CENTERS 20 1 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 2, 2013 It is important to take care when comparing

construction costs in different countries, because different building standards and local methods of construction can affect the expense substantially. In this report, 2013 building costs per sq m are expressed in local currency. Trends in prior years, however, are discussed in terms of year-over-year percent changes. The expenses in this article are indicative benchmark

costs taken from a sample of projects and should not be relied upon for making any financial decisions. Several factors drive construction costs:

1) The local construction market, including all forms of construction such as residential, engineering, commercial and industrial. Due to a finite supply of construction labor, plant and materials in an area, those regions experiencing overheated construction markets inevitably see rising costs. Qatar, Abu Dhabi, China, and India are good examples, where large portfolios of new construction are underway, and as a consequence costs are rising quite strongly.

2) Material costs. In recent years, because of the high demand for steel, copper and fuel from China, building materials that use a high proportion of these have been rising, producing big spikes in structural steel and reinforcement prices from 2008 to 2012. Copper pipes, electrical cable and transformers have also increased in cost as copper prices went up. Higher fuel costs in recent years have also affected the cost of manufacture and distribution of concrete. Fortunately since mid-2012, steel, copper and fuel

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