Q1 2024 Oceania Market Construction Update [Sydney]: Many institutional developers are shifting their focus from commercial projects to the residential and industrial sectors, with build-to-rent, co-living, and student accommodation becoming prominent areas of interest.
While the rate of escalation has decreased from the highs of 2022, it remains relatively elevated in the short term due to various cost pressures and new regulatory requirements.
Many institutional developers are shifting their focus from commercial projects to the residential and industrial sectors, with build-to-rent, co- living, and student accommodation becoming prominent areas of interest.
Nonetheless, in New South Wales, activities are still predominantly centred around ongoing government-led projects in hospitals, schools, and infrastructure. The residential and commercial sectors remain subdued due to high interest rates and inflation, and oversupply issues, respectively.
Building approvals, completed work, and project commencements have risen by 11.9%. Declines in the residential and commercial sectors continue to be balanced by substantial ongoing work in the engineering sector.
Key factors impacting escalation
- Government funded project continue to push the NSW market along
- EBA negotiations continue, with some trades likely to agree to 5% to 7% per annum increases
- Material pricing remains steady with some materials such as steel seeing minor pull backs in supply pricing
- Project durations remain extended by approximately 20% beyond the norm, with contractors noting productivity across building sites remains below pre-pandemic levels resulting in preliminary cost pressures
- Contractor margins remain comparatively high against historical norms
- Reduced certainty and competition in the residential sector due to the hesitation of Tier 2 contractors to take on traditional build to sell residential projects
- Contractor and subcontractor insolvencies remain a prominent concern
Photo: RLB provided quantity surveying services on DHL Skyline – ESR Bringelly Road Business Hub, Sydney, an ESR Australia business and industrial park.
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