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News / February 13 2012 - Middle East provides shining light for global construction outlook
Middle East provides shining light for global construction outlook
Leading global construction and property advisor Rider Levett Bucknall’s 1st quarter 2012 International Report released today confirms the Middle East is a shining light in the global construction markets outlook.
Mr Mark Lochran, National Director of Rider Levett Bucknall commented, “With the US and European economies struggling to sustain momentum in their respective recoveries, and China implementing ‘cooling down’ measures to its over-heated residential property market, the global construction markets continue to languish. The Middle East provides a key shining light where the Region’s construction market recovery is well underway.”
Prepared by RLB Global Research and Development, the bi-annual International Report uses global cost data to chart tender price index movement within and between 39 key global markets.
Rider Levett Bucknall’s report indicates that as at January 2012, New York and London are still the most costly cities in their global analysis in which to build.
In the United States, house prices remain depressed, with construction of new apartments and condominium projects also at significantly reduced levels, although foreclosures are on the decline in many states.
Commercial construction activity is also very weak, with both increased office vacancy rates and downward pressure on rental rates attributable to the ongoing job market malaise.
In China, the Chinese Central Government’s series of measures imposed to cool down the private sector property market has resulted in inflation being subsided and property prices falling. In some markets, discounting on new projects by as much as 30% is being used to court buyers. Tightened monetary conditions will begin to ease over the first half of the year, as the Government seeks to avoid a ‘hard landing’ for the economy.
The economic crises engulfing the European Union are having a major impact around the Region. Across Europe, Governments are attempting to balance fiscal austerity measures against the need to stimulate a modicum of growth. The UK is no exception, as the Government struggles to reign in mounting debt. Construction continues to be constrained by developers’ lack of access to finance, as lending institutions remain highly risk averse amid the economic turmoil.
In Saudi Arabia, the Government’s vast SAR500billion investment in infrastructure and affordable housing continues to spur growth, while the ease of access to credit from the Kingdom’s well-capitalised banks is driving private sector fixed-asset investment. Saudi Arabia’s growing need for sustainable energy, has led to The Kingdom’s first tender for a nuclear plant by the end of 2012. In addition, the country has plans to build 16 nuclear reactors by 2030, helping to meet the domestic demand for electricity.
In Australia, Darwin remains the most costly city in which to build, followed by Perth, Sydney, Canberra, Melbourne, Adelaide and then Brisbane.
Mr Lochran commented, “Australia’s economy continues to be hampered by the uncertainty abroad. While resource exports continue to expand, demand for commodities in China may be beginning to soften as measures to curb inflation take hold.”
The private sector’s construction activity has yet to recover sufficiently to replace the Government’s stimulus infrastructure spending. Residential construction activity continues to decline in most states, as housing prices slide and demand softens. There are however, some positive signs in the office markets of Brisbane and Perth in particular, and in industrial construction,” he said.
The RLB Report went on to say that on-going financiers’ risk aversion continues to inhibit developers, a trend that is unlikely to change soon, given the current economic climate.
According to the group, Darwin’s construction market has received a boost from the recent award of the construction contract for the NT Secure Facility project, a major PPP project on the city outskirts. In addition, the tender for the construction of the Marine Supply Base project has also recently been awarded.
With the confirmation of Inpex’s $20Bn gas project, the gas and construction markets will benefit directly, while other sectors will benefit indirectly through downstream and supply channels.
The dual-faceted nature of the Western Australian market persists, as the booming resources-based Northern areas contrast starkly with the Perth metropolitan area.
Builders and consultants with a conventional construction focus in Perth and the South West are generally ‘doing it tough’, with very competitive tendering. Meanwhile, construction work in the North West continues to expand, and the reach of the fly in / fly out programme has extended further across Australia to attract workers from a much greater catchment.
“The New South Wales construction industry continues to experience uncertain market conditions. The raising of finance for private sector projects remains an issue for developers, in respect of both lending conditions and lengthy approval processes,” said Mr Lochran.
“Any sustained increase in new residential work has yet to materialise. Non-residential work continues the recent trend of declining opportunities, while the engineering sector is also experiencing variable workload.”
The Adelaide construction market has entered a dual-speed phase, as small to medium-sized builders eagerly pursue workload, while top tier contractors are more selective about the work for which they bid.
The impact of major projects, including the new Convention Centre, Adelaide Oval Redevelopment, Southern Expressway and Royal Adelaide Hospital has come sooner than expected. For these larger projects, spreads in tender pricing of up to 50% are evident in some cases, as the divide widens between those contractors keen for work and those content with current levels.
Although no definitive downward trend in activity has been evident in Melbourne, many within the construction sector, including developers, financiers and contractors, are proceeding cautiously amid the ongoing general economic uncertainty.
Generally, tender pricing remains tight, although some contractors, having already secured reasonable forward workload, are less keen, which contributes to wider ranges in tender pricing. The new Enterprise
Bargaining Agreement shows labour cost increases upcoming, but these are largely being absorbed through discounting of margins.
The high Australian dollar continues to offset imported materials cost increases, while softening demand may be squeezing locally sourced materials suppliers’ margins.
Mr Lochran concluded, “Queensland also continues to exhibit the broader national trends of a two-speed economy. Tourist hubs such as the Gold Coast, Sunshine Coast and Cairns continue to be negatively
affected by the ongoing global economic turmoil and the continued strength of the currency. However, cities involved in the resources sector, such as Gladstone, Mackay and Townsville are experiencing the upside of this trend.”
Despite upwards pressure on building prices in Central Queensland, the substantial drop in overall construction activity has kept prices stable in South East Queensland.
Rider Levett Bucknall is forecasting growth in construction costs, by the end of 2012, of 4% in Adelaide, 2% for Brisbane, 3.5% in Canberra, 4% in Darwin, 1.5% in Melbourne, 4.25% in Perth, 3.5% in Sydney and 2.0% in Townsville.
According to the group, assessing cost implications for projects commencing in the second half of 2012 will be particularly problematic due to the implementation of the planned carbon tax changes to operate from July, but will start to emerge during this first quarter of the year.
News / February 13 2012 - Middle East provides shining light for global construction outlook