Central London is now the most expensive city in the world for construction, according to the 2014 International Construction Costs Report released today by Arcadis.

Switzerland is now the most expensive country in the world for construction while Japan and Singapore have seen significant relative cost reductions over the last year.

According to Arcadis, London’s position in the annual global relative cost league reflects the very high specification levels seen in many London developments and the fact that the UK construction industry has never been as productive as its US and European peers. High costs of development in London are also the result of an acceleration of client demand in assets, such as prime residential, which are reaching a capacity ceiling, and has led to significant cost inflation over the past year. This is very much a London prime residential market phenomenon, and very different from other UK markets outside of the capital.

The annual study, which benchmarks building costs in 43 countries across the globe, found that relative construction costs have been affected by currency fluctuations, commodity prices and increasing demand for development in many recovering economies throughout the year. These changes have seen the cost of building in the UK increase significantly, while the continuing devaluation of the Yen has led to the relative cost of building in Japan drop below that of the USA.

In contrast to last year’s index, European countries dominate the top ten. This is due, in part, to the ongoing economic recovery in the likes of Germany and France which is gradually translating into contractors demanding more for their services. Meanwhile, currency devaluation in many emerging markets means that relative costs have dropped considerably in these areas. Costs in the likes of India, Indonesia, Malaysia, Thailand and Vietnam are now around 35 percent less that of the UK.

In the Gulf region costs remain relatively modest, despite high levels of investment in transport infrastructure, such as the US$200 billion GCC rail network, and extensive event-led construction in the shape of Qatar’s successful World Cup bid. What remains to be seen is what impact the ongoing instability in the Middle East and recent weakness in oil prices will have on spending plans and, consequentially, pricing.

Simon Rawlinson, EC Harris Head of Strategic Research, said:

“The relative cost of construction in different markets has been heavily impacted by fluctuations in global currencies over the past year. Growing economic stability in parts of the Eurozone has led to European nations dominating the top ten for building costs. This is at the expense of some Asian states such as Singapore, Macau and Japan, where currency devaluations have seen them drop down the rankings. Japan, in particular, has seen the relative cost of construction fall considerably over the last year and the market is now more competitive than that of the United States.”