Construction tender prices throughout Sydney and Melbourne are set to remain under pressure for several years as a massive pipeline of infrastructure work creates resource and skill shortages, the latest report has found.
In its latest forecast, built environment consultancy Arcadis says it expects tender prices throughout Sydney to rise by 4.5 percent per year for each of the three calendar years from 2019 until 2021 and further by 4.0 percent in 2022.
This follows increases of 4.0 percent in last year.
Prices are also under pressure in Melbourne, where Arcadis expects increases 4.0 percent in each of 2019 and 2020 followed by 4.5 percent in 2021.
Pressures will be more subdued, however, in Brisbane and Perth where competition between contractors is more intense.
In its report, Arcadis says Sydney’s construction market is extremely strong.
Whilst approvals for new apartments are falling away, the market is being buoyed by massive levels of government investment in transport and social infrastructure as well as strong activity in commercial building sectors such as offices and hotels.
With vacancies already below four percent, the office market is extremely tights as technology giants such as Google and Amazon soak up space in the CBD.
As well, the transformation of the new ‘airport city’ at Badgerys Creek has seen the announcement of more than $20 billion in investment in transport, health and education which has also spurred private investment in commercial, residential and retail.
This, Arcadis National Director – Cost & Commercial Management Matthew Mackey says, has created resource challenges across all areas and has led to a ‘war for talent’.
“Quite simply, there is far too much work and not enough people to deliver it,” Mackey said.
“Both design consultants and contractors are reporting difficulties in securing skilled people to take on new work. This demand for qualified and experienced personnel, particularly at a trade level, is putting pressure on tender pricing. Many Tier 1 and Tier 2 contractors have been transferring resources from other states to handle the volume of work available – and this has still not been enough to cope with current demand levels.
According to Mackey, both the lack of available resources and ongoing skills shortages are leading to a lack of competitive tension as both managers and trade contractors start to cherry-pick the projects for which they will tender.
In trades, Arcadis says there are several areas where price increases are running well-beyond their ten-year averages.
This includes plasterboard, joinery, concrete, formwork, structural steel and engineering services.
With numerous Enterprise Bargaining Agreements which are being struck involving increases well above CPI levels, workers are also cashing in.
Meanwhile, Arcadis says pricing pressures in Melbourne are also rising as the volume of construction work increases across each of the commercial, residential and infrastructure sectors.
On the latter, activity is being underpinned by a massive pipeline of projects which includes Melbourne Metro, the West Gate Tunnel and upgrades to the Western Ring Road..
Commercial building, meanwhile, is being buoyed by demand for office space.
Whilst this is welcome, Arcadis says it is leading to upward pressure upon tender pricing due to limited resource availability and shortages of skills – a situation it expects to worsen as the industry and the economy move into boom phase.
It advises clients to prepare for a more challenging environment in procurement and delivery and to spend more time in pre-contract and procurement phases to ensure that risks are mitigated as much as possible.
All up, the report found that Sydney Australia’s most expensive city in which to build and the 34th most expensive city in the world in which to build.
Amongst Australian cities, this is followed by Brisbane (56th), Melbourne (61st) and Perth (62nd.
Globally, New York is the world’s most expensive construction market followed by San Francisco, Hong Kong, Copenhagen and Geneva.