The market for tenders in major building and engineering projects across Australia will remain competitive until private sector construction activity regains momentum, the latest forecast suggests.
Releasing its latest report, project management and cost management advisory firm Turner & Townsend said it expects barely any increase at all in construction tender prices for major projects in 2021 as the market remains subdued and focus remains primarily on public sector projects.
Nevertheless, it expects tender price escalation to gain momentum from next year.
In its report, Turner & Townsend said the outlook for construction will become increasingly positive across Australia’s five major capital cities from 2022 onward as a strong pipeline of public sector projects is supported by renewed momentum in private sector construction.
For 2021, however, it expects market conditions to remain subdued.
Simon Kearney, Director at Turner & Townsend, said the market for major construction is currently focused on public sector projects as governments seek to fast-track major road and rail developments along with social infrastructure projects such as schools and hospitals.
But he said the market for tenders would remain competitive until momentum returned in private sector work.
“Many private sector projects were placed on hold or cancelled altogether (in 2020) due to the uncertainty brought on by the pandemic,” Kearney said.
“In H2 2021, a recovery in private sector investment is forecast to begin, in line with improving economic conditions. Fiscal and monetary policy is expected to continue to support construction activity, while private investment remains subdued.”
“Tendering conditions are extremely competitive right now and the focus is on public sector projects such as schools, hospitals and defence, while there are limited private sector projects out for tender. We expect this competitive market to continue over the first half of 2021, or until private sector construction activity starts to pick up in each market.”
Across major markets, according to Turner & Townsend:
- Construction cost pressures in New South Wales will build from 2022 onward as private sector construction investment gains momentum. Whilst the market will remain competitive for 2021, confidence is returning and contractors and consultants report an upturn in enquiries.
- Queensland’s construction market has a reasonably healthy outlook thanks to a robust pre-existing pipeline of committed major projects. These include Queen’s Wharf, the Cross River Rail station developments, 360 Queens Street Office Tower, and Logan and Caboolture Hospital redevelopments.
- Activity in South Australia will soften over 2021 notwithstanding ongoing government investment in school building and major defence projects.
- Tendering remains competitive in Melbourne as construction expenditure has been subdued following the second wave of COVID-19. A lack of private sector projects put out for tender has forced contractors to focus attention on public sector work. Still, private sector work is expected to pick up from the end of 2021 into 2022 and there are major public sector projects in the pipeline including health and infrastructure projects.
- In Western Australia, the economy and construction market appear to have stabilised after recent uncertainty and volatility. Government stimulus in education and infrastructure sectors, together with a steady progression of works in food retail are expected to uphold construction activity over 2021. As well, government stimulus is driving a surge in demand for housing – the impact of which will flow on to other sectors. Already, supply chain constraints and shortages in labour have started to materialise in housing. This could start to impact construction costs across other sectors.