Rises in cost escalation forecast for Australian construction markets
31 October 2018
Rider Levett Bucknall:
According to the Rider Levett Bucknall (RLB) 4th
Quarter 2018 International Report, rises in escalation are forecast for
key Australian construction markets on the back of strong activity in
the region.
Ewen McDonald, Oceania Chairman of RLB said, ‘The Australian economy has
entered its 27th consecutive year of growth, exceeding expectations and
rising at the fastest pace in six years. Real GDP is
forecast to
accelerate to above 3.0% for 2018 and 2019.’
According to the RLB International Report, construction activity in
New South Wales continues to rise through 2018, with small increases
in construction activity expected for the next three years. The
non-residential and infrastructure sectors are the main drivers of
construction growth, with the increased investment in
roads and
railways offering significant opportunities to the
industry.
Limited resources in Sydney a major issue
The limited availability of resources in Sydney in all sectors, has
become a major issue, with design consultants and contractors alike
reporting difficulties in securing staff to undertake new work or to
expand their businesses. At present, there is considerable demand for
tradesmen to meet the available workload, putting pressure on trade
pricing.
Ewen noted, ‘There is strong confidence within the Victorian
construction industry, with both building work and engineering work done
rising substantially over the past year.
Victoria is seeing a transition within sectoral activity, with
engineering work increasing its contribution to total construction work.
Significant infrastructure projects in Melbourne announced
‘With the commencement and announcement of a few significant civil/
infrastructure projects in
Melbourne, a jump in construction costs and limited resources is
currently being experienced and expected to continue during 2019.
However, it is anticipated that the market will stabilise with the
completion of these large
building projects towards the end of 2019,’ he
added.
Building activity in Queensland declines
Building activity in
Queensland has seen a marginal decline from historically high levels
seen during 2017. While residential building work has declined,
engineering work has been rising.
Ewen continued, ‘We have seen
Brisbane construction costs flatten during 2018 due to the slowdown
in the pipeline of residential work. As work picks up for the
Queens
Wharf and other large projects, it is expected that the tendered cost of
Tier 1
subcontractor trades to increase, due to the limited number of
subcontractors available to tender.’
‘The
Gold Coast economy is now in a post Commonwealth Games phase and is
very dependent on future infrastructure expenditure on the M1 Motorway
and Stage 3 of the Light Rail,’ he added.
Public sector projects active in South Australia
In
South Australia, public sector projects remain very active with many
projects under construction and new projects coming into the market.
Numerous large civil projects are still under construction, keeping the
sector busy.
Expectations across
Adelaide are that prices for both the head and trade contractors
will increase above inflation forecasts. Engineering services trades are
also becoming busier, and as such, pricing in this area is becoming more
erratic.
Western Australia showing signs of economic recovery
The Western Australian economy is showing early emerging signs of
economic recovery. The office leasing market is seeing increased levels
of activity in Premium and A-Grade stocks. Within
Perth, there are some signs that slightly higher construction
volumes will be seen, however, changes in escalation are not anticipated
until 2019.
The RLB report found the
Northern Territory’s construction industry
remains flat with spare capacity. As defence projects begin to ramp up,
it is anticipated that they will have flow-on effects to other sectors.
Canberra activity remains high
Although the
ACT has seen sustained growth in activity for infrastructure and
urban renewal projects, it is expected that this level of growth will
not be sustainable in the medium to long term. Activity in
Canberra remains high, with annual TPI movements averaging 3.5% over
the next few years, which is ahead of the current headline inflation
rate of 2.8%.
For 2019, RLB is forecasting construction cost growth of 4.0% in
Adelaide, 4.1% in Brisbane, 3.2% in Canberra, 1.2% in
Darwin, 3.0% in the Gold Coast, 3.5% in Melbourne, 2.5% in Perth,
3.9% in Sydney and 3.5% in
Townsville.
For most cities, 2019 forecasts show rises in escalation on the back of
strong activity in the regions.
It is anticipated that in the long term the market will adjust to the
pressures currently being experienced and as such, escalation forecasts
for 2020 are lower at 3.0% for Melbourne and 3.5% for Sydney.
--ENDS--
Source: Rider Levett & Bucknall - www.rlb.com
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