The Turner & Townsend International Construction Market Survey 2018 has found that labour costs in the UK have also increased by 3.1%.
Overall, London is the fifth most expensive place to build, behind New York, San Francisco, Hong Kong and Zurich.
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Steve McGuckin, global head of client programmes at Turner & Townsend, said: “In the UK, the skills challenge continues to contribute to cost inflation.
“We need to adopt digital tools, modern manufacturing methods and automation if we are to ease the pressure on resources and help attract new talent to our dynamic sector.
“We need a fundamental shake up of the industry model to incentivise this investment, otherwise there is every excuse not to change.
“Projects need to be set up to deliver better performance from the construction supply chain – rewarding innovation in methods and materials which ensure better outcomes for the communities we build for.”