Skilled labour shortages across Australia and New Zealand create further cost pressure
18 February 2019
According to the
Rider Levett Bucknall (RLB)
1st Quarter 2019 Oceania Report,
shortages of skilled labour continue to
put more pressure on construction costs across Australia.
Ewen McDonald, Oceania Chairman of RLB said, ‘A recurrent theme has come
to light through tender interviews with head contractors and discussions
within the industry. Across RLB’s Oceania offices, availability of
skilled construction workers has become an issue at the forefront of
people’s minds.’
Workforce struggling with current market demand
Due to the current market demand, the pipeline of building and non-heavy
industry engineering work in both Australia and New Zealand is
continuing to place pressure on head contractors and
subcontractors who
are finding it challenging to secure adequate levels of labour for
current and future projects.
The construction industry must challenge traditional methods
According to RLB, as the construction
workforce, mirroring the total
workforce in both countries, has shifted towards a more aged and higher
qualified demographic, there are concerns about whether new levels of
entrants to the industry will adequately replace the personnel leaving
the industry over the next decade.
Ewen continued, ‘The needs of the present, not to mention the future,
requires the construction industry to adjust. By implementing new and
innovative work methods, potential labour shortages could be mitigated
through increased offsite fabrication, embracing the use of
technological aids and challenging traditional methods.’
Construction activity in Australia reaches 10-year high
Tender pricing around Australia is feeling the impacts of the continuing
strength of the residential sector, increased government spending,
industry wide EBA wage increases and material price increases partly
resulting from the falling AUD. Construction activity in Australia
continues to rise, reaching a ten-year high, in nominal terms, which is
adding additional pressure along the supply chain to an already strained
industry.
Construction pricing trends around Australia:
Adelaide
As anticipated six months ago, structure trades have become particularly
busy and the lack of available resources is becoming apparent. There
have been increases in both material supply and labour costs associated
with the concrete, reinforcement and formwork trades. Finding joiners to
provide pricing on projects remains very difficult.
As a result, annual escalation
forecasts for 2019 and beyond see
increases above 2018 levels, with annual uplifts of 4.0% for both 2019
and 2020.
Brisbane
Escalation expectations for the Brisbane market have seen significant
changes from six months earlier. The slowdown in the apartment sector
has been offset by a slowdown in construction completions. As work
begins to transition from in-ground works to vertical construction on
Queens Wharf and other large projects, there is an expectation that the
tendered cost of Tier 1 subcontractor trades will steadily increase, due
to the limited number of subcontractors. TPI uplifts for 2019 and 2020
are forecast at 3.0% and 5.1% respectively.
Canberra
TPI forecasts for Canberra are unchanged from six months earlier. In the
short to medium term workload remains positive, but after a sustained
level of growth within infrastructure and the related urban renewal
projects, it is anticipated that the level of growth will slow towards
the end of 2019. Forecast escalation is anticipated to peak in 2018 at
3.5% and gradually fall to 3.2% in 2019 and 3% for 2020.
Darwin
The Darwin construction market is still fragile, with spare capacity at
all levels of the industry, very low levels of private investment and
intense competition for the few projects on offer. As the government
continues to put out projects to stimulate the market, coupled with
defence projects coming on line, escalation forecasts for 2019 and 2020
are above 2018 levels, though still very weak with 0.8% and 1.2%
respectively.
Gold Coast
With the reduced volume of new projects, the market is experiencing
competitive pricing between contractors, subcontractors and suppliers
for projects valued at under $50 million. Larger projects, subject to
enterprise bargaining agreements, should see labour price increases of
5% per annum. As a result, the general escalation forecast for the
region during 2019 has been revised down to 2.5%.
Melbourne
Cost pressures are being seen, particularly in labour and materials that
are common to both building and infrastructure projects, such as the
cost of concrete, which has risen approximately 20% over the past two
years.
These conditions have put significant pressure on tender pricing, which
has seen 2018 escalation rise to 4.0%. Looking forward, there is an
expectation that restrictive planning conditions, higher interest rates
and tighter lending requirements may take their toll, reducing the
number of approvals and pipeline of work. As such, escalation forecasts
for 2020 remain at 3.5%.
Perth
While the market adjusts to improved business conditions and optimism is
returning to the economy, forecast escalation for 2019 is 2.5%,
unchanged from levels reported six months ago. And as capital expansion
occurs within the mining sector, a 3.0% increase in escalation is
forecast for 2020.
Sydney
Factors contributing to price rises include general wage rises, base
metal prices such as iron ore, copper and aluminum increasing
approximately 10% over the past twelve months and the price of oil
steadily increasing since early 2018. The complexity of projects is also
placing additional risks on the subcontract market that are being passed
on to tender pricing.
With the continued high levels of construction activity in 2019, the
issues outlined earlier have resulted in an uplift in escalation
forecasts for the coming years.
Townsville
Townsville’s escalation forecasts are unchanged from the previous edition. The region continues to see competitive rates across most sectors, and timing of upcoming projects may impact rates as major trades may compete for major defence projects and other projects within the pipeline. Escalation of 3.5% is expected for both 2019 and 2020.
RLB Oceania Construction Market Intelligence Report Q1 2019, https://s28259.pcdn.co/wp-content/uploads/2019/01/RLB-Oceania-Report_Q1_2019_2.pdf
--ENDS--
Source: Rider Levett & Bucknall - www.rlb.com
Contact: Ewen McDonald T +61 3 9690 6111
External Links: https://s28259.pcdn.co/wp-content/uploads/2019/01/RLB-Oceania-Report_Q1_2019_2.pdf
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