Dive Brief:

• Construction costs in San Francisco, according to management and consulting firm Turner & Townsend’s "2019 International Construction Market Survey,” were the highest in the world at the end of 2018 at an average of $416 per square foot and 5% higher than 2017. San Francisco edged out No. 2 New York City, where construction costs rose 3.5% to an average of $368 per square foot.
• Following San Francisco and New York City were London ($352 per square foot), Zurich ($349) and Hong Kong ($348). In North America the next most expensive cities in which to build were Seattle ($338), Chicago ($296), Vancouver ($253), Indianapolis ($244), Phoenix ($241), Atlanta ($240), Houston ($237) and Toronto ($237). 
• Driving up costs in the majority of markets is the skilled labor shortage and rising material costs, especially for steel. U.S.-imposed tariffs have added 5%-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.

Dive Insight:

Cost increases are in store for most U.S. construction markets this year, according to Turner & Townsend’s report. Prices in San Francisco and Seattle are estimated to go up another 6%; Atlanta, Chicago, Indianapolis and Houston around 4%; and Phoenix and New York City around 3%.

Turner & Townsend found that one of the reasons construction costs are rising in San Francisco is because of the technology industry’s demand for space. In 2018, that helped put the cost of constructing an office building in the Bay area anywhere from $300 per square foot for a business park project to $625 per square foot for a “prestige” high-rise. 

By comparison, up and coming tech communities are a bargain. In Phoenix, for instance, that same office space costs anywhere from $124 per square foot to $340 per square foot, making the metro more inviting to startups. At the end of 2018, the Phoenix area had almost 3 million square feet of new office space under construction.

And Phoenix is second only to Northern Virginia in new data center construction, AZ Big Media reported, with more companies taking advantage of state tax incentives, the metro area’s stable and relatively low-cost power supply and a low risk of natural disasters interrupting operations. 

Vantage data centers recently purchased 50 acres of land in Phoenix-area Goodyear, Arizona, and is planning a 1 million-square-foot data center campus there. Construction is expected to begin sometime this year, with the first capacity scheduled to be up and running early next year. 

Atlanta-based Holder Construction is building another data center in the Phoenix area, a $430 million, 550,000-square-foot expansion to Iron Mountain’s existing facility. The first two phases of that project are expected to be complete by June.