Sydney has topped Australian cities as the most expensive place to build—and prices are expected to rise.

The Arcadis 2021 International Construction Costs report ranks 100 cities around the world based on a survey of costs and market conditions.

Sydney was 29th in the world, ahead of Melbourne (41), Brisbane (42), Perth (45) and Adelaide (55).

New Zealand’s construction costs were substantially higher than any Australian city, with Auckland and Christchurch in the top 20 cities.

Geneva was in top spot followed by London, Copenhagen, Oslo, Zurich, New York City, San Francisco, Hong Kong, Dublin, and Macau rounding out the top 10.

Arcadis national director for cost and commercial Matthew Mackey said the global construction sector had been resilient in the face of a pandemic and that pricing had held steady during the past 12 months.

“We avoided the steep recession in construction that many feared and now the industries are set to benefit as governments look to kickstart their economies,” he said.

“In Australia, construction demand as we come out of Covid-19 is being led by the public sector and we see competition for work putting downward pressure on tendered costs in the first half of the year.

“We expect to see inflationary pressures emerge later in the year as the market tightens, and material shortages and labour costs start to bite.

“For the medium term and beyond, costs will rise steadily, driven by labour shortages caused by border closures, expanded investment in social infrastructure, increased material costs and strengthening construction demand from the private sector.”

Arcadis is forecasting the competitive conditions would cause an initial drop in construction costs of up to 1 per cent this year, before “rebounding strongly” at the end of this year as new infrastructure projects are begun.

In its latest quarterly Australian Construction Market View, Arcadis has forecast construction tender prices in Sydney would increase by 0.5 per cent in 2021 and then 2.5 per cent each year thereafter until 2025.

Melbourne is tipped to show the highest increase in 2021, with tender prices forecast to have increased by 1.5 per cent by the end of the year.

Arcadis has predicted net-zero carbon targets would be a key driver of global construction costs in the near future thanks to the more stringent requirements for building design and specification.

International Environment Agency data shows 39 per cent of the world’s greenhouse gas emissions come from the creation and use of new and existing buildings and infrastructure.

“If anything, the pandemic has sharpened attention on climate change and pressure is mounting on the construction industry,” Mackey said.

“Sustainability presents commercial challenges … the industry needs to strike a balance between buildings that are net-zero and future-proof, and buildings that are viable and investible.”