According to Rider Levett Bucknall’s (RLB) 4th Quarter 2021 International Report, despite Australia’s lockdowns which are estimated to have cost the economy in excess of $20 billion, the construction industry across the country has remained ‘business as usual’ and has consistently recorded high levels of activity.
RLB’s Oceania Research and Development Director, Mr Domenic Schiafone said, “Data recently released by the Australian Bureau of Statistics highlights the continuing resilience of the construction industry across Australia. Prior to the COVID-19 pandemic, it was anticipated that construction volumes for the 2021 financial year would be mixed, mainly due to falling levels of activity across Australia.”
Construction activity at decade highs
“The surprising result is that most construction activity metrics analysed by RLB are close to decade highs. Most states across the nation experienced similar activity levels in the 2021 financial year to the previous year,” he added.
Overall construction work done in Australia amounted to $212 billion, a slight decrease on the $213 billion achieved in the 2020 financial year. The fall in volume was largely attributable to reduced activity in Victoria, which amounted to $2.4 billion. This comes as no surprise, with Victoria enduring the worst COVID-19 outbreak and longest lockdown in Australia.
Across all RLB offices, high levels of activity have been observed in the current year to date, despite the generally subdued economic sentiment. In most cities, it has been ‘business as usual’ within the construction industry.
Sydney and Melbourne adapting to setbacks
According to RLB’s International Report, both Sydney and Melbourne are the exception, with the industry adapting to various setbacks caused by total industry shutdowns and density restrictions on-site. Despite the bumpy road experienced since the outbreak, construction performance was strong for the 2021 financial year. The long-term influence of COVID-19 remains in train for those sectors initially hit the hardest.
However, the fast-tracked actions taken by both federal and state governments have provided stability in certain sectors and considerable growth in others. The multi-level apartment sector in Australia has been the single main contributor to record levels of building activity in major cities.
Apartment sector continues to be key contributor
Mr Schiafone continued, “Looking ahead, while the sector will continue to be a key contributor, it will struggle to reach the record levels achieved in the years leading up to 2020 again. The current view is that supply has outstripped demand.”
“Upward pressure on contractor tender pricing is being seen across the country, albeit at differing levels. Sydney, Melbourne, Canberra, Adelaide and Darwin have observed stable increases, generally within expectation. However, significant surges have been experienced in Brisbane and Perth, with escalation forecasts for 2021 well above levels forecast at the backend of 2020,” he said.
Material prices reach record highs
This is surprising as both states have had limited lockdowns impacting construction activity, but both introduced stringent border closures when compared to the rest of the country. Material prices have risen through 2021 in concrete, steel, reinforcement, timber and PVC based products used in hydraulic and electrical trades.
Raw material prices for metals, such as copper and iron ore, also reached historic record highs.
Such rises have prompted some trades to link supply rates as a condition of tender pricing and therefore subject to a price adjustment should the rate increase.
Similarly, hold prices from steel suppliers have diminished, with increases upwards of 20% observed since October 2020 from some suppliers.
Recent tender results for other trades convey a slightly different scenario. Finishes and some services trades have remained stable. This is perhaps reflective of the decline in multi-level apartment developments and mixed outlook for what lies ahead.
Contractors’ preliminaries increase due to pandemic conditions
Not surprisingly, contractors’ preliminaries have increased as a result of COVID-19 conditions. Contractor margins remain within expectation and the appetite to secure pipelines of work are still present. Supply chain issues and the issues impacting shipping container movements across the globe are well documented.
Contractors have flagged the potential for material shortages, shipping cost increases and delays of imported goods and equipment. However, at this stage, the influence on recent tender pricing is not significant. However there does appear to be growing pressure and perhaps further impacts to come.
Looking at construction costs across the country for 2022, RLB is forecasting the following increases: Adelaide (3.0%), Brisbane (5.0%), Canberra (3.5%), Darwin (2.5%), Gold Coast (5.0%), Melbourne (4.5%), Perth (4.5%), Sydney (2.4%) and Townsville (3.0%.)