Construction costs are escalating in Toronto, but less so than the average across 38 global markets analyzed in a newly released overview of project development trends. Turner & Townsend’s 2016 international construction market survey deems Toronto “lukewarm”— a rating it shares with 14 other markets, including Beijing, Houston and the United Arab Emirates — to indicate that competition among contractors is keeping cost inflation in check.
Contractors’ margins are likewise shrinking — attributed to labour shortages and intense competition among consultants, contractors and developers. Globally, the average has slipped from 6.3 per cent to 6.1 per cent over the past year, and it’s slightly lower still, at 6 per cent, in Toronto.
Toronto builders saw a 2 per cent rise in their costs last year, while costs rose an average of 2.9 per cent across all surveyed markets. Only Moscow and Sao Paulo are considered “cold”; at the other end of the scale, New York and Seattle are “overheating”.
The report identifies two trends underpinning recent cost dynamics, with Toronto seeming to fit with the markets classified as overstretched, or cycling down from high levels of construction. “These markets are mostly less volatile owing to their maturity and diversity,” notes Steve McCuckin, global national director, real estate, with Turner & Townsend.
Meanwhile, falling commodity prices and slowing Asian growth have hit some of the other surveyed markets hard. “The economies affected by these have generally cooled as low market confidence has delayed new investment,” McCuckin observes.
In Toronto’s case, multi-residential construction is identified as a key factor in the stability. Its continued condo boom places it among what the report calls “two-speed” markets.
“Typically, any sector that has a high exposure to residential construction trades, such as plastering, tiling, painting and joinery is hot with significant cost escalation,” the report states. “The result is that sectors like offices, warehouses, retail, health and manufacturing and described as lukewarm or warm.”
With the average construction cost for six different building types pegged just above US $2,000 per square metre, Toronto is in the mid pack of the survey along with Brisbane, Melbourne and Munich. Zurich top the charts with average costs at US $3,683 per m2. Nine cities — Bangalore, Warsaw, Moscow, Johannesburg, Beijing, Istanbul, Nairobi, Kuala Lumpur and Sao Paulo — reports costs below US $1,000 per m2.
Toronto is one of eight markets considered to have high labour costs, in the range of US $36 to $50 per hour. Eight others are in the very high cost range, exceeding US $51, including Zurich, three U.S. cities and four Australian cities.
Project preliminaries such as obtaining development approvals, preparing drawings and providing services and security that will be needed on the worksite account for about 10 per cent of construction costs in Toronto. That’s a lower share of total costs than in many other markets, but that’s attributable to the relative higher costs of other aspects of construction in the city.
