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march/april 2007

volume 19, issue 2

international construction cost index

The five most expensive countries to build in are Greece, Great Britain, Denmark, Norway, and Sweden according to our 2007 survey. Greece maintains the top spot for a second year. Great Britain moves from fourth to second. Switzerland fell out of the top five and Norway moved into the group making Scandinavia the most expensive region. Exchange rate fluctuations were the primary cause for position shuffling of the other top countries.

The ranking of the five least expensive countries to build in was nearly unchanged from 2006. This year they are India, Malaysia, China, Thailand and Brazil—replacing the UAE. High inflation pushed the UAE index above Brazil’s index.

Average year-on-year construction price inflation is 5.5 percent—higher than 4.0 percent last year. All locations reported higher prices. Japan had the smallest increase of only 1.3 percent. The booming market in the UAE resulted in an increase of 29 percent. Higher prices in the UAE contributed to about half of the average increase over last year, but many locations reported higher costs.

Ten countries reported annual inflation over the 5.5 percent group average. Mexico was the only other location in double digit inflation— 11.5 percent. Regionally, inflation averaged about 5 percent in the Americas, nearly 7 percent in the Asia/Pacific and almost 5 percent in Europe.

Inflation relative to the US determines changes in parity values. Fourteen countries had inflation higher than the US. Seventeen reported lower inflation. The average

increase relative to the US for all locations was 0.6 percent. Japan had the lowest relative change and the UAE had the highest.

Depreciation of the US dollar

continued during the past year after

a brief period of gain early last year.

A weaker dollar raises index values,

unless offset by relative inflation. Typically, foreign exchange market

fluctuations are far more significant

in any one period than relative

inflation.

The Thailand baht gained nearly 17 percent against the US dollar over the year. The euro—eleven

10.4 percent. During the past year, the US dollar experienced minimal gains against the currencies of Japan and Mexico.

Shifts in the parity and exchange rate values produced the following index changes:

Index values increased for 30 countries. The average index increase for all locations is 8.6 percent. With its large currency appreciation, Thailand’s index increased over 21 percent. The UAE had the largest index increase—23 percent—due to its high inflation.

countries in our comparison—gained 9.8 percent against the dollar. Since 2002, the euro has gained
countries in our comparison—gained
9.8 percent against the dollar. Since
2002, the euro has gained over 50
percent of its value against the
dollar. Other notable currency gains
include the New Zealand dollar—
Only two locations had index
values decrease—Japan and
Puerto Rico. Japan had the
largest decrease—3.8 percent.
Relative inflation was the primary
cause of the decrease.
14.8
percent, the Australian dollar—
12.4
percent, the Czech koruna—
The USA ranking remains at 17.
11.9
percent, the British pound—
11.2
percent and the Polish zloty—
continued on page 4
table 1: cost model parameters
one-story manufacturing facility, owner-built, owner-occupied
statistics
office
manufacturing
total
gross floor area
47,344 sf / 4,400 m 2
102,220 sf / 9,500 m 2
149,564 sf / 13,900 m 2
floor-roof height
16 ft / 4.90 m
28 ft / 8.55 m
volume
761,385 cf / 21,560 m 3
2.9 mcf / 81,225 m 3
3.6 mcf / 102,785 m 3
perimeter
1,821 ft / 555 m
exterior wall area
8,070 sf / 750 m 2
26,093 sf / 2,425 m 2
34,163 sf / 3,175 m 2
specifications
office
manufacturing
foundations
spread footing
spread footing
structure
girders
girders
bay size
20 ft x 20 ft / 6 m x 6 m
39 ft x 59 ft / 12 m x 18 m
roof
adhered single-ply EPDM
adhered single-ply EPDM
exterior wall
metal siding
metal siding
fenestration
aluminum w/ insulated glass
none
finishes
standard
minimal
mechanical
heated, vented & air conditioned
heated, vented
electrical
recessed fluorescent light fixtures
metal halide high bay light fixtures;
copper bus duct
heated, vented electrical recessed fluorescent light fixtures metal halide high bay light fixtures; copper bus duct

table 2: industrial building purchasing parities / index

date: March 2006

country

index city

parity range

exchange rate

index

inflation rate

tax rate

Europe

   

Austria

Vienna

0.87 - 1.01

0.75

EUR

125.3

 

2

to 3 %

20%

Belgium

Brussels

0.85 - 0.97

0.75

EUR

121.3

 

2

to 3 %

21%

Czech Republic

Prague

17.9 - 20.85

21.04

CSK

92.1

 

3

to 4 %

19%

Denmark

Copenhagen

7.45 - 8.51

5.59

DKK

142.8

 

2

to 4 %

25%

Finland

Helsinki

0.95 - 1.08 *

0.75 EUR

135.3 *

 

1 to 3 %

22%

France

Paris

0.93 - 1.06 *

0.75 EUR

132.7 *

 

2 to 4 %

19.6%

Germany

Frankfurt

0.91 - 1.03

0.75

EUR

129.3

 

2

to 5 %

19%

Great Britain

London

0.68 - 0.78

0.51

GBP

143.2

 

5

to 6 %

17.5%

Greece

Athens

1.03 - 1.18

0.75

EUR

147.3

 

7

to 8 %

19%

Ireland

Dublin

0.94 - 1.07

0.75

EUR

134.0

 

1

to 4 %

13.5%

Italy

Milan

0.83 - 0.94

0.75

EUR

118.0

 

2

to 4 %

20%

Netherlands

Amsterdam

0.84 - 0.96

0.75

EUR

120.0

 

3

to 5 %

19%

Norway

Oslo

7.92 - 9.08

6.09

NOK

139.6

 

5

to 8 %

25%

Poland

Warsaw

2.90 - 3.38 *

2.90 PLZ

108.2 *

 

--

22%

Portugal

Lisbon

0.76 - 0.87 *

0.75 EUR

108.7 *

 

--

6%

Russia

Moscow

1.05 - 1.22

1.00

USD

113.5

 

10 %

18%

Spain

Madrid

0.64 - 0.74

0.75

EUR

92.0

 

2

to 4 %

16%

Sweden

Stockholm

9.12 - 10.42

7.00

SEK

139.5

 

1

to 2 %

25%

Switzerland

Zurich

1.56 - 1.80

1.22

CHF

138.0

 

3

to 7 %

7.6%

Americas

   

Brazil

Sao Paulo

1.32 - 1.53

2.05

BRL

69.5

 

3

to 6 %

15%

Canada

Toronto

0.99 - 1.13

1.16

CAD

91.7

 

4

to 6 %

8%

Mexico

Mexico City

7.48 - 8.75

11.02

MXP

73.6

8

to 10 %

15%

Puerto Rico

San Juan

0.83 - 0.97

1.00

USD

90.0

 

3

to 8 %

0%

USA

Chicago

1.00 – 1.00

1.00

USD

100.0

 

4

to 5 %

9%

Asia/Pacific

   

Australia

Melbourne

1.22 - 1.40

1.24

AUD

105.8

 

4

to 5 %

10%

China 1

Shanghai

3.68 - 4.47

7.74

CNY

52.6

 

3

to 4 %

17.5%

India

Bangalore

16.61 - 19.45

43.44

INR

41.5

 

2

to 5 %

12.5%

Japan

Tokyo

127.69 - 148.98

117.93 JPY

117.3

 

1

to 2 %

5%

Malaysia

Kuala Lumpur

1.40 - 1.69 *

3.46 MYR

44.7 *

 

--

0%

New Zealand

Auckland

1.18 - 1.36 *

1.40 NZD

90.6 *

 

--

12.5%

Singapore

Singapore

1.07 - 1.24

1.52

SGD

76.1

5

to 10 %

5%

Thailand

Bangkok

18.88 - 22.04 *

32.59 THB

62.8 *

 

--

7%

UAE

Dubai

2.51 - 3.08 1 mostly domestic materials

3.67

AED

76.1

15 to 30%

0%

* provisional

 

table notes

about the parity/index We publish comparisons based on a 13,900 square meter (150,000 square foot), single story manufacturing facility. Table 1 provides characteristics of model building.

Faithful+Gould and associated companies price a "market basket" of 26 items to represent all building construction items. We permit substitutions of some items appropriate for the local market, but not quantitative changes.

Masonry and plaster partitions may be substituted for metal stud and gypsum board partitions.

Pile foundations may not be substituted for spot foundations, even though some locations might require them.

Prices are trade contractors’ in-place prices, including labor, material, equipment, overhead and profit. To produce a composite comparison, we weight each item according to its contribution to total cost. Pricing in-place rates, rather than basic construction inputs (material, labor and equipment), inherently measures differences in productivity, and to some extent differences in market and bidding conditions.

Any cost comparison has limitations. A model building approach will not include changes to the design for local regulatory and code requirements, seismic design guidelines, design styles and climate influences. Our comparison excludes factors such as these that can have a significant affect on cost because they are difficult to determine using a single model building approach.

We exclude many capital cost items, such as:

site work

furnishings and equipment

process related requirements

land and associated costs

design and management fees

financing

value added or use taxes or any other recoverable tax

parity and index An index measures the relative price difference between locations using a common currency. International indexes use exchange rates to make the comparison.

Currency exchange is not a comparative measure of the relative value of goods and services, but an equilibrium measure of continued on page 3

table 3: historic price change base date: 1 st quarter 2000 (100.0) country 3 qtr
table 3: historic price change
base date: 1 st quarter 2000 (100.0)
country
3 qtr 04
1 qtr 05
3 qtr 05
1 qtr 06
3 qtr 06
1 qtr 07
Europe
Austria
112.5
112.9
112.9
113.9
115.6
115.9
Belgium
112.2
112.7
113.8
115.8
117.0
118.8
Czech Republic
110.5
112.7
114.8
115.5
116.6
119.0
Denmark
115.1
117.7
119.1
120.5
122.7
124.5
Finland
108.4
108.4
111.1
111.8
112.9
113.4
France
114.4
119.2
121.6
124.5
126.4
130.1
Germany
101.0
102.3
103.3
105.7
106.2
113.1
Great Britain
125.3
129.1
132.9
131.6
135.6
137.3
Greece
132.1
136.3
141.1
147.1
147.1
154.9
Ireland
116.0
118.2
120.0
122.1
123.3
128.1
Italy
117.7
118.4
119.9
122.2
123.7
126.1
Netherlands
119.3
121.6
124.0
125.8
129.0
129.7
Norway
114.5
114.4
116.1
120.3
123.3
130.8
Poland
117.8
120.3
123.2
125.0
127.1
135.0
Portugal
113.2
115.5
116.6
118.9
121.1
127.9
Russia
123.6
114.2
115.0
120.4
124.6
130.3
Spain
116.3
118.1
119.5
122.1
125.7
126.3
Sweden
117.9
117.9
121.5
120.3
120.9
125.4
Switzerland
107.5
108.0
109.1
110.3
112.5
115.6
Americas
Brazil
154.7
157.7
165.5
167.8
172.4
177.5
Canada
122.8
125.0
128.1
132.7
137.4
139.5
Mexico
130.9
134.1
138.8
139.8
155.2
155.9
Puerto Rico
n/a
n/a
n/a
n/a
n/a
n/a
U.S.A
114.1
118.8
122.4
126.7
134.3
132.9
Asia/Pacific
Australia
121.4
127.1
129.9
133.7
137.1
138.0
China
105.7
107.7
109.9
109.9
111.5
113.5
India
n/a
n/a
n/a
n/a
n/a
n/a
Japan
102.2
101.5
104.0
103.5
106.3
104.8
Malaysia
110.6
115.8
119.9
119.9
122.9
125.8
New Zealand
125.5
128.1
133.8
135.1
139.2
143.2
Singapore
115.1
114.5
114.5
116.6
116.6
122.4
Thailand
119.3
124.2
126.7
128.6
132.4
136.3
UAE
n/a
n/a
n/a
n/a
n/a
n/a

notes

continued from page 2

supply and demand for each currency. Market driven exchange rates, not relative construction cost inflation, often varies more during project planning and execution for an international project. Their volatility compels us to think differently about international comparisons. Indexes lead to thinking of comparisons as a fixed percentage—a dangerous path for international indexes. Often, international indexes do not show the exchange rates used. Parities, like International Construction Intelligence, remove exchange rates from comparisons.

Parity provides a measure of construction value, which changes with relative construction inflation, not exchange rates as would an index. It measures the rate of currency conversion that equalizes purchasing between currencies. Suppose a

building in the US costs USD 1,000 per square meter and the same building in China costs CNY 4,300 per square meter, the building parity is 4.30 (4,300 / 1,000). You must spend 4.30 Yuan for every Dollar to construct the same building. Parity makes it easy to use whatever exchange rate is appropriate your project timeframe and corporate policies when same currency comparisons are required.

the tables Table 1 summarizes the physical characteristics of our model building. It is an owner-built, owner-occupied single-story manufacturing facility with a significant amount of office space.

Table 2 provides parity ranges and an index for the average parity. We show ranges, as there is nothing definitive about any international construction cost comparison. We use the US (Chicago) as the base location for comparison. Index calculations

use March 2007 exchange rates. The table includes projections of construction price inflation (April to April) and lists taxes for each country. Most are Value Added Taxes (VAT) or Goods and Services Taxes (GST)— excluded in the parity/index values since in some instances they may be reimbursable. Sales taxes applied only to materials are included (e.g., USA) since they are not reimbursable.

A few countries had changes to VAT rates

over the year. Germany increased the rate to

19 percent from 16 percent. The Czech

Republic lowered its rate to 19 percent from

22 percent. GST in Canada is now 8 percent.

Table 3 shows local price change. First quarter of 2000 is the base period (100.0). Locations with n/a were added after our base period.

using the parity/index Assume you need the cost of a manufacturing facility in India and know a similar facility costs USD 1,000 per square meter in the US.

Use the parity value in Table 2 to calculate costs in Indian Rupees (INR).

Using low parity: 16.61 x USD 1,000 or INR 16,610 per square meter

Using high parity: 19.45 x USD 1,000 or INR 19,450 per square meter

Using average parity: 18.03 x USD 1,000 or INR 18,030 per square meter

If you need the costs in US Dollars, convert to USD by dividing the cost (in INR) by the exchange rate:

The index calculates costs in Dollars (USD) in

INR 18,030 / 43.44 = USD 415

a

single step using the exchange rates stated

in

the table.

Using average index from Table 2: 41.5 percent x USD 1,000 = USD 415 per square meter

Convert the USD cost calculated by the index to INR by multiplying by the exchange rate:

USD 415 x 43.44 = INR 18,028 per square meter

The previous examples demonstrate the how applying the exchange to a parity value transforms it into an index value. An index value is the parity divided by the exchange

rate expressed as a percentage. (Index value

= (Parity value / Exchange rate) x 100.) For

India:

Low index: (16.61 / 43.44) x 100 or 38.2 percent

High index: (19.45 / 43.44) x 100 or 44.8 percent

Many companies use exchange rates that are different from the current public market. Suppose corporate finance dictates an exchange rate of 40.00 INR = 1 USD, not the current rate of 43.44.

New average index value: (18.03 INR / 40.00) x100 = 45.1

India would be 45.1 percent of U.S. costs, not 41.5 as shown in the tables using the current exchange rate.

the us dollar doldrums

The US dollar continues to lose ground in the foreign exchange markets. With near record lows against the euro,

a surging dollar

seems unlikely in the near future. So, the question for many is, “How much lower can the dollar go?”

exchange rates index to USD 1.10 1.00 0.90 0.80 0.70 0.60 EUR GBP AUD JPY
exchange rates index
to USD
1.10
1.00
0.90
0.80
0.70
0.60
EUR
GBP
AUD
JPY
0.50
4/02
4/03
4/04
4/05
4/06
4/07
cost index

Foreign companies considering capital investments in the US should have a very favorable view of the present situation.

Many factors are contributing to the sinking dollar. Investors see weakness in the US economy in comparison to strengths and higher interest rates of the European and Asian economies. The increasing government debt and the growing trade imbalance of the US concern investors. They have expectations of higher returns in other markets and are shifting investments from the US.

US trade imbalance, particularly with

China, continues to be a problem. China continues to tightly control the value of the Yuan creating tension between the two countries and fear

of protectionist policies.

The result of both is less foreign currency in the US and more US dollars in other countries.

currency in the US and more US dollars in other countries. continued from page 1 Construction

continued from page 1

Construction investment periods will span years, not months. Currency values are volatile. Therefore, swings in exchange rates during a project are virtually certain. Parity comparison provides a more consistent comparison.

The construction industry typically uses “location factors” to calculate expected construction cost for a location when there is a known cost at some other location. Most index sources focus on locations in a single country so exchange rates and parity are of no concern.

A model-building index allows

comparison of the exact same building at different locations. In reality, the building will change for a variety of reasons, such as local industry practices, codes and regulations. Therefore, the cost

relationship predicted by the model- based index may not hold true.

reports from respondents

A couple of comments from or

respondents are worth noting. Singapore is experiencing problems with sand and aggregate supplies from Indonesia. The issue could resolve itself quickly, but costs in Singapore are higher by a factor of three due to the problem. The survey reflects these higher costs.

German speaking central Europe experienced a sharp rise in prices during the last year. Building output increase 5.1 percent in Germany—a sharp contrast to the previous ten years. This trend is expected to continue in 2007, affecting Germany and Switzerland. Expect labor cost increases and more difficulty finding labor this year.

regional circulation contacts For subscription information, contact our regional representative. Americas, Africa,
regional circulation
contacts
For subscription information, contact our
regional representative.
Americas, Africa,
Asia/Pacific
Canada
ATLANTA
Tom Wiggins
Phone 1 404 874 3638
tom.wiggins@fgould.com
TORONTO (Hanscomb)
Paul Westbrook
Phone 1 416 487 3811
westbrook@hanscomb.com
Europe, CIS
Middle East
LONDON
Alison Preston
Phone 44 207 121 2121
DUBAI
Brent Sather
Phone 971 4 405 9100
alison.preston@fgould.com brent.sather@fgould.com
information sources
In addition to the Faithful+Gould and Atkins
employees worldwide, we gratefully
acknowledge the assistance of the following
companies for providing information for use
in International Construction Intelligence:
Padghams, Australia; AT P, Austria; BoPro,
Belgium; ProjectGlobal Ltda., Brazil;
Hanscomb, Ltd., Canada; Savant
International, Czech Republic and Russia;
COWI AS, Denmark; ISS Proko Oy,
Finland; Cammisar Consulting, Germany;
KKZ Consultants, Greece; Europa Risorse,
Italy; PAE Design and Facility Management,
Japan; IGG, Netherlands; PUBM Quantity
Surveyor (WM) Sdn Bhd, Malaysia; AS
Bygganalyse, Norway; Aconsa y Asociados
Consultores, Mexico; Watts and Partners,
Spain; AB Bygganalys, Sweden; Comcon
Services (Thailand) Co., Ltd, Thailand
constructive expertise
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Faithful+Gould is a member of the ATKINS Group. Published by Faithful+Gould, 817 West Peachtree Street,

Published by Faithful+Gould, 817 West Peachtree Street, Suite 500, Atlanta, GA 30308, and Reed Construction Data, 63 Smiths Land, Kingston, MA 02364. Editors: Tom Wiggins, Faithful+Gould; John Ferguson, Reed Construction Data. For subscription information, contact International Construction Intelligence at 404.874.3638 or tom.wiggins@fgould.com. ISSN: 1060-8206