Strong tourism activity drives demand for new hotels
October 11, 2017.
The Rider Levett Bucknall (RLB) Forecast 85 report New Zealand Trends in Property and Construction released today confirms that strong tourism activity continues to drive demand for new hotels.
Prepared by the New Zealand Institute of Economic Research (Inc.) (NZIER) exclusively for RLB, Forecast 85 highlights a continued high inflow of tourists is supporting demand for new hotel developments. Overall, strong population growth in Auckland is likely to support construction activity at current high levels.
New hotels lead non-residential construction growth
Geoff Speck, Director of RLB in Auckland said, ‘Demand for new hotel developments remains one of the top drivers of growth in non-residential construction demand. Demand for industrial and social buildings, as well as new office developments, has also been robust over the past year.’
RLB expects strong population growth will underpin many of the longer-term trends. These include: office growth to accommodate the higher number of white collar workers, increased public sector spending on education and healthcare facilities, and new accommodation buildings as supply responds to continued high numbers of international visitors.
Higher construction costs to limit growth
Although relatively strong population growth in Auckland points to solid underlying construction demand, higher construction and funding costs and capacity pressures will likely limit the extent of growth in construction activity.
Geoff continued, ‘The relatively high construction cost inflation in Auckland indicates capacity pressures in the Auckland construction sector are more acute than in other regions.’
‘Annual growth in Auckland residential construction costs remained steady at just over 8 percent, in contrast to the moderation in construction cost inflation in the other regions,’ he added.
Skilled worker shortage continues
Migrants have helped to ease labour shortages in capacity constrained sectors such as construction, with growth in work visas over the past year led by jobs in trades.
However, building sector firms continue to report difficulty in finding labour, with labour shortages for skilled workers as acute as that experienced in the previous building boom in 2004.
With stronger population growth in Auckland likely to support construction activity at high levels, construction cost inflation in the region is expected to remain relatively high.
Geoff concluded, ‘We forecast annual construction cost inflation to moderate to below 5 percent by the end of this year. For 2018, we expect annual construction cost inflation to remain relatively high at over 4 percent through to 2019.’
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