Tender prices for major building projects in Sydney are under pressure as high levels of construction activity across all sectors is leading to builders and tradespeople being more selective with the work they take on, the latest report suggests.
In its latest Construction Market Conditions report, quantity surveying company WT Partnership says it expects tender prices throughout New South Wales to rise by 4.0 percent in 2017 and 4.5 percent in 2018 – well outstripping the rate of increase in any other state or territory.
Driving the growth is a strong construction market, it said.
Following a robust year in 2016, WT said momentum had not stalled after the resignation of Premier Mike Baird, especially after proceeds from the leasing of the state electricity network came in at around $2 billion greater than what had been expected.
With the second stage of the $20 billion Sydney Metro Project now underway, infrastructure work is going gangbusters, WT said.
In commercial building, several developments are being undertaken throughout the CBD whilst significant projects are under consideration at Macquarie Park and Parramatta.
Meanwhile, activity was also strong across the housing, retail, industrial, private health and private education sectors whilst much work was taking place in re-zoned residential and mixed-use developments as well as public housing in and around transport hubs.
In this environment, WT says prices are under pressure as builders with full order books are becoming increasingly selective about the projects they take on and some tenders are being declined or submitted at inflated and opportunistic prices.
Pressure was also being applied because of a lack of availability regarding some trades.
Mechanical and electrical contractors, for example, are becoming difficult to find on smaller, difficult or complex projects amid an abundance of less complicated work.
Meanwhile, tier 1 contractors are anticipating imminent and upward pressure upon structural trades.
This, WT said, will have a knock-on effect in respect of other trades.
Demolition prices will come under pressure as major works are either started or soon to get underway across the Sydney CBD, Quay Quarter and the second stage of the Metro Project.
Moreover, this will continue going forward as further infrastructure projects ramp up in coming years.
Indeed, the peak of the mechanical and electrical work on Sydney Metro will not be evident until 2020/21, WT said.
By financial ear 2018/19, overall tender prices could be rising by as much as five percent, it said.
Outside of NSW, according to WT:
- Tender prices in Tasmania will rise by 3.0 percent in 2017 and 3.5 percent in 2018 amid a good (but plateauing) range of projects in Hobart and strengthening activity in the North.
- Prices in Victoria will rise by 2.5 percent and 3.0 percent as work on apartment projects and civil infrastructure drives demand for concrete and building engineering services, structural trades, specialist consultants, suppliers, and plant and equipment.
- Moderate pricing pressure will emerge in the ACT with confidence improving and work underway on several major projects notwithstanding that many subcontractors are keen for work at the moment.
- Modest pricing pressures will emerge in Queensland in 2018 despite the market remaining subdued for now as a pull-back in residential projects is offset by a modest upturn in non-residential work.
- Pricing pressures in other states are generally expected to be more subdued.