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News / November 14 2011 - Prime time to build in Australia
Prime time to build in Australia
Rider Levett Bucknall’s 4th quarter 2011 Oceania Report confirms it’s the prime time to build in Australia with the competitive tender environment offering discounted project costs due to lagging construction volumes in the markets.
Prepared by Rider Levett Bucknall Research and Development, the bi-annual Oceania Report (OR) confirmed amidst recent global economic turmoil, the Australian economy has not been immune to the declines in market confidence, as Europe struggles to contain its sovereign debt and banking liquidity crisis, the US fights to prevent its economy from stalling, and Chinese growth shows indications of waning.
RLB Head of Global Research Roger Hogg commented, “With the private sector failing to replace the government stimulated construction and infrastructure programs, contractor concerns regarding diminishing workloads will increase through the remainder of 2011 and into 2012.”
“Margins are still being placed under pressure as competition for work is elevated. In the context of general levels of CPI, continued stable labour, materials and fuel costs will further enhance the cost competitiveness of building in Australia.
Mr Hogg continued, “Risk averse banks and lending institutions continue to demand high levels of pre-sales in order to satisfy their stringent risk criteria. Consequently, there are still large numbers of projects unable to gain access to finance. It is difficult to say when these conditions will ease, but much depends on the strength and speed of the global recovery and the confidence this will provide the larger lenders.”
According to the firm, the Australian construction sector has also felt some of the effects of this instability. Residential construction Work Done for the June quarter was down 8% year on year, with the national housing sector softening by 12% as house prices continued to fall in most capital cities.
Overall national apartment construction Work Done was also subdued, slipping 2% despite continued buoyancy in the Melbourne market, which grew 11% in volume terms in the June quarter, year on year.
Non-residential construction has been equally downbeat, as commercial construction continues to be buffeted by weakening demand and low levels of consumer and investor confidence. Total non-residential construction Work Done fell 24% for the June quarter, year on year.
In Sydney, uncertainty has arisen due to reduced work opportunities, and a reluctance of clients to commit to new projects. This has resulted in an extremely competitive marketplace, as contractors seek to obtain replacement work for current projects.
Levels of construction in the Darwin and Canberra markets began to ease in the third quarter of 2011 and currently tenders in the marketplace are being keenly contested.
A number of major developments in Adelaide have now been secured, including the $300M Convention Centre, $450M Adelaide Oval Redevelopment, $800M Southern Expressway and $100M Tonsley Park TAFE. These projects are only just being awarded and it’s unlikely that significant physical work will occur until the new-year.
RLB’s Oceania Report found that, looking forward, mixed signals prevail within the non-residential sector, as retail construction approvals declined in the June quarter, year on year, along with Health and Education construction.
Sources of positivity were office construction, which recorded a solid 6.8% growth, and industrial construction, which jumped 20.8%.
Engineering construction Work Done bucked any negative trend, posting 21% growth for the June quarter, year on year, as all major cities other than Darwin recorded higher figures than last year. Queensland was particularly strong, with a 43% increase, as strong investment in the resources sector continues to flow into regional centres such as Mackay and Gladstone.
In common with most sectors of the wider Australian economy, construction is reliant on the resolution of major economic issues overseas before it can engage in a full and sustained recovery from the GFC. Improved conditions should then see an increase in demand and a corresponding easing of lending criteria as financial institutions’ appetite for risk grows.
The firm is forecasting 2011 tender price falls of 11.4% in Darwin and 3.4% fall in Adelaide. Whole-year tender price increases of 1.0% are forecast Brisbane, 2.4% for Canberra, 2.7% for Melbourne and 2.2% for Sydney.
Construction costs in 2012 are forecast to increase by 4% in both Adelaide and Brisbane, 5.3% in Darwin and 3.5% in Canberra, Melbourne and Sydney.
News / November 14 2011 - Prime time to build in Australia