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Tender prices within the construction sector in New South Wales are set to rise further as a strong pipeline of work challenges the ability of the construction sector to respond, a new report suggests.

In the latest edition of its Review of Construction Markets, quantity surveying outfit WT Partnership says it expects tender prices to rise in New South Wales by four per cent in each of 2016 and 2017 and by a further five per cent in 2018.

WT said activity across the state was being driven by a number of factors.

With record levels of approvals, it said the residential sector is continuing to perform well amid a continued trend for higher density living.

Infrastructure, meanwhile, remained a standout performer as the government invested heavily in road and rail projects in an effort to catch up after years of under investment. A significant number of health and education projects are also in the planning phase and a number of art, museum and public building developments are going through government funding approval processes.

Activity was also strong in the commercial sector, meanwhile, as a number of large office projects entered the procurement phase and several multi-billion dollar retail refurbishment and expansion projects are firmly in the tendering and administration phase.

In terms of how this would impact tender prices and cost, WT said this would vary according to sector, contractor size and location, with much of the increase being driven by the ability (or inability) of the subcontractor market to absorb the level of work in the market.

Whilst tier 1 and 2 contractors were continuing to report that rates for structural trades remain stable, those for facades continue to be affected by foreign exchange rates.

Rates for ceilings and linings trades appear to have peaked, meanwhile, but WT says these are likely to remain high as a result of the volume of projects entering the finishing stages.

“Although price fluctuations are specific for sector, contractor size, location and level of tender activity much of the escalation or price increase is driven by the sub-contractor markets ability – or not – to absorb the level of work in the market,” WT said in its report.

“However, regardless of this, some overarching factors such as general contractor sentiment, immediate workload, knowledge of projects in planning, procurement strategies and current trade pricing leads us to maintain our previously reported tender price escalation forecasts for NSW.

“As an average across the State we have normalised our escalation forecast to an average of 4.0% per annum for the remainder of 2016 and 2017 and 5.0% for 2018.”

Outside of NSW, meanwhile, according to WT:

  • Upward pricing pressure remained in Queensland amid a less competitive sub-contracting market but would ease as the residential sector slows down
  • Pricing pressure is also evident in Tasmania and the ACT as what WT says will be record levels of construction activity in the near to mid-term places pressure upon the limited supply of builders and subcontractors in the former and an ongoing program of land releases and capital works drives activity forward in the latter state.
  • Price escalation will generally be below 2.5 per cent per annum across other states.
 
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