London has slipped to being the second most expensive city in the world in which to build, according to the latest Arcadis 2023 International Construction Costs (ICC) report.

According to the study of comparative construction costs across 100 global cities, the UK capital city was overtaken by Geneva, with New York coming third and San Francisco fourth.

A number of factors impacted costs including high levels of inflation, which continued to affect most cities in the report. As a result, many of the top 10 most expensive cities remained unchanged from last year, including hotspots such as Munich, Copenhagen, and Zurich.

Five of the top-10 were also cities with dollar denominated or dollar pegged currencies, including Hong Kong, while Boston and Philadelphia were new entrants thanks to a combination of dollar appreciation and the ongoing impact of local inflation.

According to the report, entitled New Horizons, European market costs were particularly impacted by the invasion of Ukraine over 2022, over and above the worldwide increase seen in energy costs, with the resulting disruption to local manufacturing supply chains and regional-specific energy markets adding 5-6% to the region’s inflation.

Despite these economic headwinds, including material price inflation reaching 30% in the middle of the year, the UK construction market remained resilient in 2022, with housing, industrial and infrastructure driving growth. While material price inflation looks on track to fall to 6% by mid-2023, however, labour shortages will continue to bite, with a market slowdown looming and challenges ahead for many in the sector.