Q4 2023 Australia Report [Melbourne]: The Melbourne construction market continues to be driven by government led spending on infrastructure, health and housing and the continued influx of build to rent developments.
Elsewhere, activity is also strong in the logistics and industrial sectors. While the low to mid rise build to sell apartment sector remains positive, there is caution as construction costs, land prices and other financial inputs suffering from high inflation are impacting the feasibility of new projects.
The availability of labour, a problem for some time, continues to contribute to high escalation across the industry and low productivity.
The supply chain of materials has settled albeit at longer lead times than the industry has previously encountered.
Investment in the commercial sector remains flat as the demand for new workspace is subdued.
The low to mid rise build to sell apartment sector remains positive across Melbourne.
Escalation insights
Availability of labour, and the high levels of activity continue to drive escalation. Material prices across most trades have eased and more aligned to expectation, however sudden spikes across the trades which have become less prevalent than in the first half of 2023, are difficult to predict.
Evidence suggests that high profit margins are being placed on trades because of contractor / subcontractor views on risk factors over the life of a project.
In addition, external factors and general inflationary issues (i.e. cost of power), along with high levels of activity also contributing to escalation across the industry.
The escalation forecast for 2024 is 5%. The easing of material prices, and some easing of activity towards the backend of the year should contribute to reduced increases compared to 2023. Contractor appetite for a well-structured and financed project will also contribute to some competitive tendering.
However, risk remains due to sudden spikes across trades as the ongoing competition to secure labour or external economic and/or risk factors, being built into pricing, based on contractor/subcontractor assessments on all aspects of a project.
Photo: 435 Bourke Street
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