Rising global construction costs: France resists better than its European neighbors, but for how long?

• Out of 100 metropolises, Geneva, London and New York lead the cities with the highest construction costs
• With one of the lowest inflation rates in the EU, France has three cities in the 2nd third of the ranking: Nice (35th), Paris (39th) and Lyon (44th)
• The race for Net Zero is driving up construction costs in cities around the world
• Carbon performance and resilience to climate change are becoming essential factors in asset valuation
• Targeted investments are essential to preserve the value of real estate assets and infrastructures, and thus avoid their obsolescence on the markets

This year, Geneva is the city with the highest construction costs, overtaking London now in second place in the ranking, followed by New York (3rd) and San Francisco (4th), both of which have climbed by one or two places. The cities in the top 10 of the ranking, mostly European, remain mostly unchanged from last year. However, Boston and Philadelphia are entering it for the first time, due to the strength of the dollar and unabated inflation in the United States.

French cities are in the second third of the ranking (Nice 35th, Paris 39th and Lyon 44th). This position can be explained in particular by controlled inflation in France, cushioned by lower energy costs than in the rest of Europe due to its energy mix. It is no coincidence that France is the most attractive country in Europe in terms of foreign investment (according to the latest barometer from the firm EY) and Paris, the leading financial centre.

However, these relatively good results for France deserve to be qualified. First of all, the new housing sector is in sharp decline, weakened by the rise in interest rates, with a production crisis which will have effects on construction companies. The office market is in the midst of a revolution, with real stalls for assets located on the outskirts of major urban centers. Only certain asset categories are really doing well, such as data centers and the hotel industry driven by the 2024 Olympics and, more broadly, a tourism market in net recovery.

With the need to mitigate the effects of climate change, increasingly stringent European energy performance regulations and rising user expectations, there is a growing demand for the most sustainable assets.

For Nicolas Boffi, Development Director at Arcadis: “Inflation and rising interest rates are barriers to investment and we are seeing a certain wait-and-see attitude from our clients. However, the climate emergency, the new environmental standards and the increased expectations of users do not wait. To preserve the value of their real estate assets and their infrastructures, our clients have every interest in investing in a targeted manner, thanks to green finance, to improve their environmental performance, or even to give them new uses. Delaying these investments and losing sight of rising ESG expectations is a greater risk. In this context, it is important to take a long-term view and make the right decisions to protect current returns while ensuring the relevance and value of long-term assets, in order to avoid their stalling and ensure their longevity. »

The report includes a practical guide in five points to help investors face the current challenges, through advice ranging from taking into account current and future regulations (SFDR, Taxonomy, NZEB, etc.) identification of the risks involved.

It also provides lessons learned from the great financial crisis of 2008.

For more information, you can download the full report via the following link: https://bit.ly/ArcadisEXT_ICC23

The 10 cities with the highest construction costs are:

1. Geneva
2. Londres
3. New York
4 San Francisco
5.Munich
6 Zurich
7. Copenhagen
8. Hong Kong
9.Boston
10. Philadelphia