A recent report shows construction costs in San Francisco were the highest in the world at the end of 2018 with an average of $416 per square foot, which is 5% higher than in 2017, according to www.constructiondive.com.
Management and consulting firm Turner & Townsend released its 2019 International Construction Market Survey, in which San Francisco edged out No. 2 New York City, where construction costs rose 3.5% to an average of $368 per square foot.
Rounding out the top five most expensive were London ($352 per square foot), Zurich ($349) and Hong Kong ($348). In North America, the next cities with the highest construction costs were Seattle ($338), Chicago ($296), Vancouver ($253), Indianapolis ($244), Phoenix ($241), Atlanta ($240), Houston ($237) and Toronto ($237).
The skilled labor shortage and rising material costs—especially for steel—reportedly are increasing costs for most markets. U.S.-imposed tariffs have added 5% to 10% to the cost of tall and supertall steel-framed core and shell construction. In San Francisco, prices last year increased 17% for steel rebar and 30% for steel beams.
Turner & Townsend's report shows construction costs in San Francisco and Seattle are estimated to rise another 6% this year; about 4% for Atlanta, Chicago, Indianapolis and Houston; and about 3% for Phoenix and New York City.
One of the reasons construction costs are rising in San Francisco reportedly is because of the technology industry's demand for space. In 2018, the cost of constructing an office building in the Bay area ranged from $300 per square foot for a business park project to $625 per square foot for a "prestige" high-rise.
However, up-and-coming technology communities are less expensive to build. For example, in Phoenix, the cost of building that same office space ranges from $124 per square foot to $340 per square foot. At the end of 2018, the Phoenix area had almost 3 million square feet of new office space under construction.