Building Surge Drives Construction Prices Higher

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Monday, May 9th, 2016
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Tender prices in the construction sector throughout Australia are rising at their fastest pace in many years as massive levels of investment in apartments and infrastructure put contractors in a strong bargaining position, especially in eastern states.

In a new report, quantity surveying outfit WT Partnership said significant levels of tender price escalation was underway in Queensland, New South Wales and Victoria, whilst more modest levels of escalation were evident in Western Australia, Tasmania, South Australia and the Australian Capital Territory.

In terms of states, New South Wales leads the way. Tender prices rose by five per cent last year and are expected to rise by a further five per cent in each of the three years to 2018 as the long term lease of Transgrid in November drives investment in transport, infrastructure health and education projects. New office building work in the state is also continuing, office refurbishment projects keep rolling in and the apartment boom is keeping apace.

Prices are now rising at their fastest pace in New South Wales in more than a decade.

Prices are also rising at their fastest level in eight years in Queensland and at their fastest level in seven years in Victoria.

In Queensland, a robust apartment market has seen much of the sub-contract market operating at full capacity in Brisbane, whilst a pick-up in retail is absorbing significant volumes of contractor capacity and work on a range of projects is happening on the Gold Coast in the lead up to the Commonwealth Games.

In Victoria, meanwhile, the volume of tenders is expected to increase in the second and third quarters, levels of investment in road, rail and port projects remain strong and the state government’s level crossing removal program is creating opportunities for civil contractors and trades.

Elsewhere, modest levels of pricing pressure are expected to emerge in South Australia, Western Australia and the Australian Capital Territory.

In South Australia, a number of aged care projects are moving into construction and a number of retail centre owners are said to be investigating redevelopments, albeit with mid-tier contractors remaining in a position of excess capacity in that state.

In Western Australia, construction sector work remains constant notwithstanding the resource sector slowdown amid a good pipeline of projects especially for tier one contractors. A reasonably buoyant housing market in the ACT, meanwhile, is generating some work there despite a pull-back in commercial activity – albeit with subcontractors remaining keen for work.

Finally, modest levels of price escalation are expected in Tasmania notwithstanding strong levels of work amid the commencement of around six hotels this year and strong work on the Royal Hobart Hospital. Upward pricing pressures will also be modest in the Northern Territory as the Ichthys project winds down.

Around much of Australia, upward pricing pressure has re-emerged throughout much of the construction sector as the booming residential market stretches the supply of contractors, subcontractors and employees.

ABS figures indicate that the number of people employed throughout the sector is currently sitting at record levels, whilst recruitment outfit Hays says skill shortages are evident across a number of professions and trades.

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