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Emerging Markets Propel Asian Construction Growth: ICMS Survey Results Released

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Global professional services consultancy Turner & Townsend has launched the 14th edition of its International Construction Market Survey (ICMS), which reports positive levels of construction activity across the majority of Asian markets. The report analyses input costs – such as labour and materials – and charts the average construction cost per square metre for commercial, residential and industrial projects in 89 markets around the world.

Established markets see strong pipelines amid ongoing challenges

Established markets for real estate development such as Singapore, Hong Kong, Japan and South Korea are seeing demand and strong pipelines across multiple sectors. These markets, however, continue to face ongoing challenges posed by skills shortages and rising labour costs.

The state of Singapore’s construction industry

Singapore experienced the highest rate of cost escalation in Asia in 2022 – at 12 percent. It is expected to remain high at 8 percent in 2023 as the market continues to be faced with skills capacity challenges, and high labour and material costs.

 

However, the city-state is seeing a strong pipeline of construction projects driven by public housing, infrastructure (such as the Cross Island and Jurong Region MRT lines) and commercial developments, along with an emerging biomedical sector. Construction costs in Tokyo and Osaka are some of the highest in the world, ranking fifth and sixth respectively in the top ten most expensive places to build.  Average costs are US$4,497 per square metre in Osaka and US$4,567 per square metre in Tokyo. Singapore is ranked fourth in Asia and 31st  globally, with an average cost of US$3,307 per square metre.

 

All three cities are seeing high levels of construction cost inflation, with rates in Tokyo and Osaka at 9 percent in 2022, softening to a forecast of 7.5 percent in 2023. Fuelling a strong backlog of construction projects in an already hot Japanese construction market is the upcoming 2025 World Expo in Osaka. As a result, construction cost inflation in Japan is likely to remain high.

 

Hong Kong remains one of the most expensive markets to build globally despite dropping from the 7th to 11th  position this year, with an average cost of US$4,292 per square metre. The city has been overtaken in the top ten spots which are dominated by US cities, reflecting the strength of the US dollar, and the double-digit construction cost inflation in many of the US cities.

Strong growth driver from emerging markets in Asia

Emerging markets including India, Indonesia, Malaysia, Vietnam and the Philippines are warming up, driven by strong pipelines of major multi-year transport projects, data centre and manufacturing growth, and increasing activity by commercial developers.

 

Diverse sectors are the key for driving growth across Asia Across the region, growth sectors for real estate construction include data centres, health and life sciences, in line with the local boom in the development and delivery of medical technologies. Singapore, Hong Kong, and Shanghai in particular have announced plans to localise the development, production and delivery of vaccines and medical technologies through increased numbers of manufacturing facilities and research laboratories.

The industry’s push towards sustainability

The region is also feeling increased pressure from the global push towards net zero. Global corporate occupiers have shifted sustainability up their priority lists and are applying more stringent requirements to their international portfolios, helping to establish supply chain expertise in environmental best practices and drive innovation in the built environment.

 

Cheryl Lum, Director and Head of Data and Research at Turner & Townsend Asia said: “The Asian construction industry has stayed resilient throughout the pandemic. There are strong pipelines across all Asian countries with construction growth and major investment directed to emerging markets in particular. More established markets such as Hong Kong, Japan, Singapore, and South Korea continue to see high construction demand despite Asia being home to some of the most expensive cities in the world to build in.”

 

“Asia’s diverse and ambitious market economies places it in a strong position to command sustained construction growth and attract investment, particularly in industrial, science & technology, healthcare, transport and real estate developments,” she added.

 

“In an economic climate of rising construction costs and inflationary pressures, it is imperative for the construction industry to work collaboratively to raise efficiency and increase productivity through digitalisation, innovative technologies and upskilling of the value chain. Common to all markets is the need for strong supply chain engagement from clients to understand capacity and capability, benchmark costs and closely manage project performance.”

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Collaborative Contracting Could Re-energise Singapore’s Construction Recovery

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Singapore’s construction sector is showing signs of strength and stability into 2023, having risen 10 percent year on year in the fourth quarter of 2022 following an 8.1 percent growth in the third quarter. Greater investment in collaborative contracting could be key to building further on the current rate of recovery, according to Turner & Townsend’s Singapore Market Intelligence Report: April 2023.

 

The global professional services company expects this growth to continue, forecasting total construction demand to be between S$27bn and S$32bn in 2023. Despite challenges and uncertainties, the construction industry will likely outpace the wider economy this year.

 

Pent-up demand for public and private construction is one of the factors driving the success of Singapore’s construction sector. The bulk of anticipated construction work in 2023 is for residential,  commercial, and infrastructure projects, with a robust pipeline of both public housing as well as private residential developments resulting from previous successful en-bloc transactions and government land sites sold in 2021 and 2022. Commercial construction demand is also expected to ramp up in 2023, including the redevelopment of old commercial premises to enhance asset values and the recommencement of major projects that were halted during the pandemic.

 

Singapore’s government has also set out refreshed infrastructure priorities, with the 2023 budget laying out a plan for some key construction and infrastructure needs that point toward a more consensus-driven approach. There are several measures broadly aimed at increasing productivity, such as the S$4 billion National Productivity Fund top-up, the new Enterprise Innovation Scheme, and the S$1 billion boost to the Singapore Global Enterprises initiative.

 

The local construction sector has room to grow but remains vulnerable to global challenges such as high inflation and rising interest rates. This uncertainty has resulted in construction costs remaining high despite a year-on-year decrease in prices for steel bars (13.9 percent) and concreting sand (1.7 percent), holding back a rebound in other types of construction projects. While the industry’s performance is steady, it has the potential for further growth if major players can take tangible steps to overcome the challenges and if delayed projects resume.

 

Considered together, these factors call for more investment in collaborative contracting. This inclusive approach, advocated by Turner & Townsend and other industry players, creates value through closer consultation among stakeholders and has the potential to re-energise Singapore’s built environment beyond its current rate of recovery. Implementing collaborative contracting practices takes time and requires trust from all parties from the start. Singapore’s government is already encouraging this, with the Building and Construction  Authority recently refreshing the Built Environment Industry Transformation Map (ITM) to combine the previous Construction and Real Estate (Facilities Management) ITMs into a single map focusing on a value-chain approach.

 

Khoo Sze Boon, Managing Director, Singapore and Vietnam at Turner & Townsend, said: “To prepare for the future and meet construction needs, better collaboration across the supply chain is critical in driving towards an advanced and integrated sector. Embracing new ways of working, such as collaborative contracting, could herald a new level of partnership and industry cooperation. Adopting the latest frameworks and technologies will help our industry improve efficiency and productivity, driving greater value into projects big and small across the city. To transform Singapore’s Built Environment for tomorrow, we need to drive collaborative contracting efforts today.”

New Turner & Townsend Insight Report Says Public Sector Projects Drive Singapore’s Construction Recovery

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Turner & Townsend’s latest Singapore Market Insight Report reflects a cautiously optimistic outlook for the construction sector, with sectoral recovery led by public sector projects. Construction activity in 2021 will continue to be driven mainly by the public sector at 65 percent, up from 62 percent in 2020. Prospects for construction demand is expected to improve, albeit only marginally. The Building and Construction Authority (BCA) projects construction demand for 2021 to be between S$23 billion and S$28 billion.

Notwithstanding that construction demand for 2021 is not yet back to pre-COVID levels, the Singapore government expects a sustained recovery in construction demand over the next five years. Some of the notable projects in the pipeline include subsequent phases of major MRT infrastructure projects, new healthcare facilities and new regional centres.

Demand from the private residential segment is anticipated to remain soft this year with a reduction in the number of land parcels put up for sale in the first half of 2021. However, the demand for collective sales could pick up later this year, as developers may start looking to replenish their land banks. We anticipate a low demand for new office and retail developments with opportunities for more office restacking and consolidation fit-out works, as companies consider more flexible working models to ensure the relevance of office workspace.

While construction output is due to rise to the range of S$24 billion and S$27 billion in 2021, up from S$19.5 billion last year, this increase will be largely attributed to the backlog created during the pandemic. Despite a decline in construction activity, tender pricing for new projects is anticipated to increase between six and ten percent, driven by contractors allowing for labour shortages, increases in key construction material costs (reinforcement), availability of contracting resources and the implementation of the COVID-safe management measures.

Given the level of uncertainty in the current market, a much wider range of tender pricing has also been reflected in some project tenders, in some instances more than 10 percent over and above last year’s price level. It is anticipated that it will take some time for tender prices to stabilise. Turner & Townsend foresee further industry consolidation and Singapore’s construction supply chain to face continued challenges with upstream and downstream disruptions.

To address a backlog of projects, severe labour shortages and lower productivity, all players across the value chain will need to work together to integrate and digitalise processes, upskill workers and uplift the capabilities of the entire Built Environment sector. The pandemic has reaffirmed the need to accelerate the adoption of Design for Manufacturing and Assembly (DfMA) technologies to help build a more resilient industry and reduce reliance on foreign workers.

Khoo Sze Boon, Managing Director, Singapore said: “Singapore’s construction industry remains one of the most severely affected sectors hit by the COVID-19 pandemic. As we continue down the path to recovery with vaccination programmes in progress and the number of cases under control, it is imperative that the construction sector rebuilds itself through collaboration and innovation. To ensure the sector’s success over the medium to long term, we need to build up the DfMA competencies of all players across the supply chain, drive the development of sustainable design and adoption of innovative technologies and materials, as well as steer research and development on renewable energy.”

Click here to download the Singapore market insight report.