National construction costs on the rise
May 8, 2019.
According to the Rider Levett Bucknall (RLB) 2nd Quarter 2019 International Report, national construction costs are on the rise.
RLB Global Chairman Stephen Mee said, ‘Key directors of our firm across the globe have identified some key challenges which are impacting construction in their respective regions.
These include the slowing of the global economy, more conservative central bank decisions resulting in tighter credit conditions, ongoing trade tensions between the US and China and uncertainty in the terms of the UK’s ‘’Brexit’’ have all been identified as contributing factors.’
Despite these uncertainties, the general perception of the global construction market remains positive. Australia is seeing the effects of the government’s emphasis on rail, road, airport and other major infrastructure related projects that commenced during 2018 or are scheduled for 2019, such as the Sydney Metro.
Slowdown in residential developments a concern
The recent Q1 2019 RLB Crane Index® reflected these sentiments, with the number of cranes across Australia within the residential sector falling slightly.
Since the last report both Melbourne and Sydney have revised their escalation forecasts for 2019, upwards by 0.5% respectively. Both Melbourne and Sydney are seeing significant infrastructure work underway, which is maintaining the pressure on costs.
Escalation forecasts for 2019 show uplifts in excess of inflation for all capital cities with the exception of Darwin and Perth. Looking forward to 2020, Darwin remains the only city with escalation below inflation.
Growth set to continue in NSW and Victoria at more moderate pace
Stephen continued, ‘The volume of construction activity in NSW and Victoria grew during CY 2018, with strong growth recorded in both the building and engineering sectors. This activity growth is set to continue into 2020, at a more moderate pace.’
‘Contractors in Sydney still report difficulties in both the tendered spread of trade prices and the number of trade quotations received. Tendering for medium sized projects remains very competitive, however, projects with a high- risk profile continue to attract cost premiums and in some cases, little interest in pricing from subcontractors,’ he said.
Market activity very mixed across capital cities
Local RLB director assessments for the Market Activity Cycle, which focusses on where the seven key construction sectors are currently within the cycle, highlight that Australia’s current market activity is very mixed across capital cities. RLB found that Melbourne, Sydney and Canberra are reporting over 50% of their sectors in the peak activity zone, while Darwin, Gold Coast and Perth are more subdued, with no sectors in peak.
Escalation in Melbourne and Sydney remains above all other cities in 2019
‘Melbourne’s market appears to be the most heated, with 86% of sectors in the peak zone, followed closely by Sydney with 71%. The apartment sector remains the strongest, with four of the nine RLB offices reporting they are in the peak zone,’ he said.
Most cities are forecasting gradual increases in escalation for 2019 and 2020 from 2018 levels. For 2019, RLB is forecasting construction cost growth of 3.9% in Adelaide, 3.0% in Brisbane, 3.5% in Canberra, 0.8% in Darwin, 2.5% in the Gold Coast, 4.0% in Melbourne, 1.5% in Perth, 4.4% in Sydney and 3.5% in Townsville.
2020 sees Brisbane’s escalation forecast at 5.1%
Brisbane’s market has remained relatively flat so far during 2019. As the slowing in the residential boom is being offset by the lag in construction completions, prolonging the high level of activity.
There has been a general easing in the market within the Gold Coast, with fewer developments commencing and continued uncertainty about largescale residential developments.
Western Australia and the Northern Territory continue to see declines in activity as mining investment continues to taper off.
Construction in South Australia has continued to strengthen, driven by strong public sector developments.
Stephen added, ‘Within Adelaide as workbooks for both head and trade contractors reach capacity, it is becoming increasingly difficult to source labour with pricing becoming more erratic within the structural, engineering services and ceiling and partition trades.’
‘Tender prices in Canberra remain heated in structural and services trades. There is an expectation in the market that new EBAs will see increases in labour costs moving forward,’ he concluded.
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