Central London tops world as most expensive city for construction

Complex planning rules, high labour and land costs and exacting design standards have combined to make London the most expensive place in the world to build.

According to a study of 40 nations by Arcadis, a global consultancy based in Amsterdam, building in the British capital is 5 per cent more expensive than Switzerland, 10 per cent more costly than Hong Kong and 36 per cent more expensive than the rest of the UK when compared on a common currency basis.

Construction in London poses particular challenges because the city is criss-crossed by rivers, Victorian sewers, utilities and archaeological sites.

But the chief reason is, unsurprisingly, the capital’s soaring cost of land and buildings, which continue to attract Chinese, Malaysian and Singaporean developers and buyers.

Alexander Jan, director at Arup, the engineering consultancy, which has worked on HS1, Britain’s first high-speed railway line, and the Shard, Europe’s tallest skyscraper, says that even if the cost of everything else were the same, the cost of acquiring land and buildings for projects would push up the price.

“Whenever you need to build a new railway or Underground line you have to acquire certain pieces of land or property just to put a shaft or substation in for tunnelling and ventilation or a substation for power,” he says. “It’s inevitably top dollar because it is in central London.”

Simon Rawlinson, head of strategic research at Arcadis, also pointed to a strong design culture in London, exemplified by leading architects Lord Rogers and Lord Foster. “It’s not so heavily industrialised because there are a lot of bespoke, high-quality designs and the sites are often difficult. This raises the complexity involved, compared with some of our neighbours like Germany and France,” he says.

The British government has set a target of reducing building costs by 33 per cent by 2025, with key measures including cuts to lengthy planning procedures and a move to shift a greater amount of the work into factories and away from construction sites.

The value of new construction work across London increased 25 per cent between the third quarter of 2013 and the same period last year, according to official statistics, with the station areas of King’s Cross, Victoria, Earl’s Court and Paddington all in the throes of ­redevelopment.

Most of the volume came from private sector housing, where the workload increased 75 per cent between the third quarter of 2013 and the same period in 2014. The vast brick edifice of Battersea power station — for 30 years a symbol of the city’s problems with regeneration — is among the industrial sites being converted to luxurious homes.

As if to demonstrate London’s particular challenges, Victoria is receiving a £700m upgrade that will open up one of the city’s most congested stations. But a tributary of the river Tyburn still flows under the site, requiring thousands of gallons of water to be pumped away, while two major sewers transect the area and, above ground, the streets are often thronged with pedestrians, adding to the complexity and risk.

Often, the quality of the existing infrastructure can be assessed only once work has started. When the new Thameslink railway station was built on Blackfriars Bridge, which had sustained damage during the Blitz, it was only “once they took the lid off it that they could see the state it was in”, says Mr Jan. “It was definitely in worse condition than they thought.”

He points to the trend towards bespoke, rather than standard, designs. When Arup helped to design a Madrid metro line, it used a uniform boxlike design for each station. By contrast, bespoke architecture was used on each of london’s Jubilee line stations.

Londoners can also be demanding, in part because the wealthy live in the centre, unlike cities such as Rio de Janeiro, and are more effective at campaigning. That raises demands to protect architectural heritage, for example, and makes it more likely that tunnelling will be used for new railway lines.

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More recently the cost of materials such as bricks has increased after production slowed during the recession and then needed to expanded rapidly. The construction recovery has also put pressure on labour capacity after a torrid period since 2008, when thousands of people left the building workforce.

Labour shortages are driving up bidding costs so that contractors are putting up prices and turning down work from projects and clients they perceive to be high risk, according to a poll of UK contractors by Aecom, the infrastructure and support services group.

Arcadis said in its global study that India was the cheapest country in the world for construction, while Malaysia, Thailand, Indonesia and Vietnam were all 35 per cent cheaper than in London.