Construction costs in major Australian capitals are on the rise as busy markets in civil construction and non-residential building add pressure to resource and capacity constraints, the latest report says.
Releasing the 2019 edition of its International Construction Market Survey, project and cost management firm Turner & Townsend say that San Francisco is the most expensive city in the world in which to undertake construction activity followed by New York, London, Zurich and Hong Kong.
In Australia, it found that construction costs increased by 3.5 percent in Sydney and by 4.0 percent in Melbourne.
Cost escalation was lower in Brisbane (2 percent) and Perth (1 percent) where markets are less busy.
Going forward, Turner & Townsend says it expects construction costs to rise by five percent in Melbourne and by 3.5 percent in Sydney throughout calendar 2019.
There have been concerns for some time about looming pressures on construction costs as a large number of infrastructure projects are underway or in planning simultaneously – creating pressure upon capacity and resource availability.
Worldwide, construction costs increased by 4.2 percent in 2018 and are expected to rise by 4.1 percent in 2019.
Gary Emmett, Economist for Turner & Townsend, said conditions throughout Australia’s construction sector remained strong notwithstanding headwinds such as weakening housing markets, global trade barriers and tightening financial conditions amid strong levels of non-residential building and infrastructure investment.
Despite an upcoming election and possible change in government, Emmett says robust conditions are likely to continue.
“Despite weakening housing markets in Australia, global trade barriers and tightening financial conditions both locally and globally creating headwinds, the local construction sector still remains strong, Emmett said.
“As the nation approaches a Federal election and possible change of government, the strength in the construction sector is expected to continue and will help prevent a slowdown.
“The Federal government’s $100 billion investment in infrastructure over the next decade, in addition to the state government investments, will help cushion the economy and keep jobs growth strong. Public sector investment in road and rail is especially buoyant and is helping offset the weakening housing sector.
“Sydney Metro, Melbourne Metro, Cross River Rail in Brisbane and Perth’s METRONET will help counterbalance downturns elsewhere. The announcement of the Inland Rail project for freight adds to the high levels of infrastructure investment,” he added.
“Strong mining and energy exports have also helped bolster the Australian economy. According to Australian Treasury’s figures annual GDP growth reached 2.3 per cent in the 2017/2018 financial year, comfortably above most advanced nations.”
Looking at particular markets, Emmett said an already busy construction sector in Sydney and Melbourne in 2018 was boosted by a pledge of around $50.4 billion of public funding for road and rail projects in these states alone.
Work on Western Sydney Airport has already started with $5.4 billion given by the government-owned Western Sydney Airport Corporation to deliver the project through to completion.
This has led to higher costs, skill shortages, supply-chain bottlenecks and stress on schedules, he said.
In Brisbane, Emmett said construction will be dominated by the $4.3 billion Queen’s Wharf project as well as the $5.4 billion Cross River Rail underground project which is underway in the city.
Construction in Perth is picking up with a new Ritz Carlton, Chevron HQ tower and METRONET, he added.