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Proud to be second best
17 May 2021
In our recently published report International Construction Costs 2021: Investing for a sustainable recovery, London has been knocked off the top position as the most expensive city to build in. It didn’t fall far though, landing softly in 2nd position. Some, however, may begin to worry about the consequences. Does this mean that our city is losing its magnetism and investors are falling out of love with it? Will the damage initiated with Brexit be compounded by Covid?
In short, not at all.
Firstly, what needs to be made clear is that despite the devastating toll of the pandemic, the construction sector around the world, and including London, has displayed a remarkable resilience. The initial astounding fall in output in April 2020 was followed by busy months of recovery, supported by close collaboration between contractors and clients. Although the gap in work delivered compared to 2019 has not been completely eradicated, it did shrink significantly, despite all the restrictions that the industry had to learn how to work with, many of which supressed productivity on sites. Consequently, a major deflationary event was avoided, and prices mostly remained flat. So, while London lost its crown in our International Construction Costs Index, it still is an expensive location to build in.
The more interesting question is: what could this mean for London’s post-Covid recovery?
Construction has a major role to play in helping the general economy back on its feet – and this is universally recognised across the globe, whether you are building back better, or just building, building, building. Public sector commitment to invest in infrastructure and housing is clear, and efforts are being made to encourage the private sector to join in. But why, with freedom of choice, would you decide to build in an expensive location? Or to turn this question around: how do costly places like London avoid “missing out”?
The key word is “value”. There is nothing new in this idea, only that it is high time we moved from talking about it, to putting it into practice. The idea of delivering ‘more for less’ is especially important for our city, and hence we should be especially interested in developments around the Value Toolkit. Developed by the Construction Innovation Hub and being piloted by the Construction Leadership Council in collaboration with 20 organisations, including Arcadis, it aims to drive value-based decision-making for construction. In the context of delivering a future-proofed asset that meets net-zero requirements, it will be essential to adopt this new way of evaluating investment.
Last but not least, let’s talk about magic and magnetism.
Dear London, even though you are in 2nd spot, you are still attractive, and no Covid or Brexit bruises will change that. According to the IESE Business School Cities in Motion Index, you are the top highly developed smart city. You have the highest human capital and international projection. Your governance, urban planning, mobility and transportation are ranked in the top 3, out of 174 cities worldwide.
So don’t worry, London, your admirers may be a bit shy now, but they are not going anywhere.
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