Construction cost escalation forecast across Australia and New Zealand
20 July 2018
Rider Levett Bucknall:
According to RLB’s 3rd Quarter 2018 Oceanic Report,
the current volume of work being undertaken across Australia is fuelling
construction cost pressure.
Ewen McDonald, RLB’s newly appointed Oceania Chairman said, ‘Both
shortages of skilled labour and rising material costs are adding
pressure on costs across the country. Over the past five years we have
seen the economy experiencing strong building growth (4.5% p.a.
compounding) together with engineering (excluding heavy industry &
power) growth of 3.5% p.a. (compounding).’
‘With above GDP growth in the
residential,
non-residential,
roads and
rail sectors over the past five years, pressure on labour availability
is seeing escalation rates generally increasing across the country
during 2018 over 2017 levels,’ he added.
Large new projects coming to Adelaide
RLB’s Oceania Report noted that
Adelaide is experiencing increases in both material supply and
labour costs associated with concrete, reinforcement and formwork trade.
There are many new large projects anticipated to enter the market this
year including the defence sector’s next phases of Air 7000, the
expansion of the ASC Site for both the Offshore Patrol Vessel and
Frigate and the Submarine projects, which should provide an abundance of
work for tier 2 and tier 3 contractors. It is anticipated that price
increases for both material and labour costs will occur, as both head
and trade contractors become busier.
Non-residential work increasing in Brisbane
Brisbane escalation almost halved in 2017 from its 2016 peak of 7.2%
per annum. Looking forward, the 2018
forecast appears very stable at
3.0% p.a., with a movement to 4.1% p.a. from 2019 onwards. The increase
from 2019 results from the anticipated commencement of a number of
significant projects within Brisbane. The State Government has announced
major hospital expansions at Logan and Caboolture, two inner-city
vertical schools, expansion of Capricornia prison (Rockhampton) as well
as the Townsville stadium that is currently under construction, all
adding to the increasing volume of non-residential work being
undertaken.
Business confidence and activity increases in ACT
The
Australian Capital Territory is enjoying high levels of business
confidence as activity increases in infrastructure and related urban
renewal projects. Subsequently, an increase in escalation rising to 3.5%
is forecast over the 2018 period. However, we expect this to stabilise
over to next few years.
Darwin market still weak
The current market in
Darwin is generally weak with spare capacity at all levels of the
industry and with very low levels of private investment. The few
Government projects on offer are bid very competitively keeping a lid on
price escalation.
Gold Coast hotel developments on the rise
According to the RLB Oceania Report, the
Gold Coast economy has now
plateaued following the very successful hosting of the Commonwealth
Games. The housing, apartments, industrial and civil sectors have
declined and retail has peaked. New hotel developments are on the rise
with the Jewel now under construction, two new hotel projects about to
commence construction and at least three new proposed hotel developments
in the planning phase. Overall, there is an insufficient volume of new
projects on the Gold Coast to push the future tender price index higher
than forecasted CPI which is in the 2.0%-2.5% p.a. range for 2018.
Victoria experiencing record population growth
Ewen continued, ‘The
Victorian economy is experiencing above national
levels of growth, fuelled by record population growth. General
escalation in
Melbourne is forecast to be relatively stable over the
next three years at slightly above inflation rates.’
‘While construction in the residential sector appears to be easing,
investment in non-residential
buildings and infrastructure have been ramping up. Government
infrastructure investment is forecast to average $10.1 billion per year
for the next four years, more than double the previous 10-year average
(FY 2006 to FY 2015). This will lead to pricing pressures seeing higher
rates of escalation, offset by the reduction of apartment volumes,’ he
said.
Perth showing signs of economic recovery
The
Perth economy is showing signs of
plateauing from the bottom of the ‘boom/bust’ cycle with the early
emerging signs of an economic recovery. There are signs that the
second half of 2018 will see slightly higher construction volume on the
back of some confidence returning to the Perth market but significant
escalation increases are not anticipated until 2019.
Strong level of development approvals for Sydney
For
Sydney, the outlook for the remainder of 2018 continues to remain
positive for all sectors due to the strong level of development
approvals in the last quarter of 2017. Despite increased opportunities,
contractor’s margins remain tight and competitive.
The availability of labour resources to all sectors of the construction
industry continues to be an issue. From April 2018, material price rises
have occurred in concrete, brick, cement, formply, selected steel
products and residential windows. These increases are in the range of 2%
to 10%.
Townsville activity continues in civil infrastructure
With
Townsville being the largest regional centre in Queensland, the
port, defence base and university sectors saw continuing activity. For
conventional construction activity (outside civil infrastructure) there
remain challenges ahead. The market remains competitive; with current
and pipeline projects thinly spread compared to years past. Competitive
rates are being seen throughout the majority of trades.
New Zealand escalation forecast to fall by 50%
Ewen said, ‘Across
New Zealand, escalation forecasts for 2018 remain elevated with all
regions forecasting TPI increases above current CPI levels (2.0% per
annum). Moving forward, expectations are that escalation will decline in
all cities. Auckland and Wellington’s escalation is forecast to fall 50%
by 2021 to 3.0% p.a., while Christchurch’s escalation will remain
constant at 2.0% p.a. from 2019 onwards.’
‘Construction sector firms continue to report acute labour shortages.
Skilled labour is particularly hard to find, although shortages have
eased slightly from levels seen in mid-2016. Migrants have helped
alleviate labour shortages, with the number of technicians and trades’
workers moving to New Zealand on a work visa in recent years. Planned
reductions in migration may impact on future escalation rates if skilled
trade labour demand is not met,’ he concluded.
--ENDS--
Source: Rider Levett & Bucknall - www.rlb.com
Contact: N/A
External Links: RLB Oceania Construction Market Intelligence Report Q3 2018
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