International construction cost index supplementary information

Model and survey notes

The building model used for the Parity/Index is a 13,900m² (150,000ft²), single storey manufacturing facility.

The Cost Model Parameters table below gives some general characteristics of the model building.

Cost Model Parameters

One-storey manufacturing facility, owner-built, owner-occupied.

Faithful+Gould and associated companies price a 'market basket' of 26 items to represent all building construction items. We allow substitutions of some items appropriate for the local market.

• Respondents may substitute masonry and plaster partitions for metal stud and gypsum board partitions.
• Respondents may not substitute pile foundations for spot foundations.

We exclude many capital cost items, such as:

• site work
• furnishings and equipment
• process related requirements
• land and associated costs
• design and management fees
• financing
• value added or use taxes or any other recoverable tax

Using the Parity/Index (UK base)

Essentially, there are two approaches to using the parity/index to compare costs at different locations when one location involves the base country.

Use the parity value to calculate costs in the national currency of each country. The parity value enables the identification of the cost for the same building in different locations in local currency.

Use the index value to calculate the cost in the currency of the index base country. The index value enables the direct comparison of costs for the same building in different locations in a single currency.

Illustration 1 - Costs in a local currency

Assume you need to compare the cost of a proposed manufacturing facility in China with a similar recently completed project in the Great Britain, which cost GBP 800/ m².

Use the parity values from the Parities/Index table to calculate likely costs in Yuan (CNY).

Using the average parity value provides a most likely cost of CNY 4,736/ m².

This equates to GBP 487/ m² (CNY 4,736 / 9.73; cost / exchange rate), meaning to build in China is approximately 40 percent less expensive than in the Britain. This uses the exchange rate from the Parities/Index table. It is possible to use a different exchange rate.

Illustration 2 - Costs in index base currency

Introducing the exchange rate with the parity calculation illustration clearly shows the relationship between parity and index. The index is simply the parity value restated through currency exchange into a single currency. It allows comparison in the base location currency in one step.

To ascertain the GBP rate per m2 for a project in China simply use the index value from the Parities/Index table as follows. Note that the index is expressed in a percent format.

This equates to CNY 4,729/ m² (GBP 486 x 9.73). (The difference from CNY 4,736 is due to rounding.)

In the event a different exchange rate is required, say due to fluctuations in the currency markets or due to fixed internal company international exchange rates, the index can be adjusted.

The example below assumes a revised exchange rate of 10.40 CNY / GBP, not the current rate of 9.73 used for the published index value.

If the costs are to be presented in the two currencies, the CNY cost would remain constant at CNY 4,736/ m² whilst the GBP cost to build this project would be GBP 605/ m² (GBP 455/m2 x 56.9%).