CONSTRUCTION MARKET CONDITIONS 2018 - WT Partnership Australia
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CONSTRUCTION MARKET CONDITIONS 2018
WT Partnership is one of Australia’s largest independent
construction and cost management consultancies, spanning
the infrastructure, property and construction sectors.
We have been operating for nearly 70 years with more than
50 offices globally and over 1300 staff. We provide local
knowledge, backed by a global perspective.
WT advocates passionately for future-proofing our cities.
We are working with governments, industry and the media
to spark a national conversation about creating sustainable
cities in the face of global population growth. We want to
change how we plan, design and build our cities to ensure
we meet the needs of our future generations.
The commentary in this report provides high-level insight
into current construction costs, and our forecast of future
trends. With involvement in many of the major construction
and infrastructure projects currently being built or planned in
Australia, we have an intimate understanding of the impact
on future market trends.
The information in this report is based on reported statistical
data, together with local insight of market trends drawn from
each State and Territory.
This report focuses on three key areas:
1. Construction Activity
2. Key Performing Sectors
3. Tender Price Escalation
Every project and development has its own nuances, and we
recommend contacting your local Director for ‘project specific’
advice.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
1CONFIDENCE ACROSS THE PROPERTY SECTOR
HAS LIFTED TO ITS HIGHEST LEVEL IN FOUR
YEARS
The infrastructure boom continues to underpin continue to fuel construction, and our Victorian offices
construction activity nationally with major projects report a strong engineering sector and also forecast
underway in New South Wales and Victoria together increasing activity in non-engineering sectors such as
with other States ramping up investment. The residential, health and education.
significant investment in road, rail, water, ports,
In South East Queensland, the apartment building
airports and telecommunications, together with
boom continued through 2017 and is only now
population growth and our ageing demographic, is
showing signs of decline. Government spend on
fuelling growth in non-residential sectors such as
infrastructure in Queenland is expected to increase
education, health and aged care.
with the State’s budget focus on Cross River Rail,
The multi-residential property market is adjusting social and affordable housing, and schools. The
in response to the decline in foreign investment, Commonwealth Games, being held on the Gold Coast
particularly from China where Government imposed in April, has had an enormous impact on infrastructure
capital restrictions are discouraging overseas development with projects such as Gold Coast Light
investment. With the housing boom easing, activity Rail and construction of the games village, games
in the multi-residential sector is declining, however venues, and a spike in tourism and accommodation
construction lags investment and there are still building.
significant numbers of apartment towers to be
Our Western Australia office reports an increased
completed in 2018.
sense of stability and confidence in the State
The focus in residential has shifted to high-end following the decline of mining and reports strong
luxury apartments and the continued expansion growth in retail development and an upswing in
of suburbs and regional townships. Social and residential apartments. The Western Australian State
affordable housing, urban regeneration and the Government has given the go-ahead on a number
emergence of the build-to-rent model are also of significant road, rail, and port projects. Our
expected to be prominent in the housing sector over South Australia office reports positive construction
the coming years. Entertainment, recreation, hotel activity with numerous cranes in the city skyline and
and resort development is also experiencing strong forecasts growth in various sectors including aged
growth and this is forecast to continue as oversees care, student accommodation, defence and education.
visitor numbers keep increasing, and the record Our Australian Capital Territory office also reports
spend by visitors in 2017 continues into 2018 and high confidence levels across all sectors and expects
beyond. increased activity in the construction of commercial,
retail, housing and aged care.
The latest ANZ/Property Council Survey found that
confidence across the property sector has lifted to Major LNG development and defence projects
its highest level in four years. Ken Morrison, Chief continue to underpin activity in the Northern Territory.
Executive of the Property Council of Australia said The outlook in Tasmania is also very positive with a
“every jurisdiction is experiencing significant lifts in substantial number of major projects in the pipeline.
confidence. The mining states of Queensland and
Nationally, the growing demand from the
Western Australia are dusting themselves off with
infrastructure sector is pushing up costs of personnel,
strong increases in the forward work schedules,
plant and equipment, and base materials such as
and staffing level expectations”. Daniel Gradwell,
aggregates, cement and steel. As resources become
ANZ Chief Economist said the survey provided
more stretched, these pressures create an industry
further evidence that most of the mining-related
wide challenge. Cost increases in the building sectors
adjustment is now behind us.
are tempered in competitive tender markets with
New South Wales continues to experience record main contractors and sub-contractors adjusting to
levels of investment in infrastructure and strong the declining high rise multi-residential demand, and
demand for residential, commercial and retail, and looking to other market sectors to secure work.
our Sydney office reports strong market activity and
Nationally, we expect Tender Price Escalation to be
growth across several sectors.
higher in the infrastructure sector with escalation
Government investment in projects such as CityLink rates generally around 4 to 5% compared to the non-
and Tullamarine freeways, Melbourne Metro Rail, infrastructure sector which we forecast to trend at
West Gate Tunnel and North East Link in Melbourne around 3 to 4% in 2018.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS JANUARY 2018
2NATIONAL SUMMARY
NEW SOUTH WALES AND VICTORIA CONTINUE
UNRIVALLED GROWTH IN BOTH CONSTRUCTION
AND INFRASTRUCTURE SECTORS
2.0%
NATIONAL AVERAGE TENDER PRICE ESCALATION
2.75%
2.0%
2018 4.0%
3.25%
2.5%
3.0% 3.5%
The diagram above provides a snapshot of our Substantial infrastructure development in New South
forecast Tender Price Escalation for each State and Wales and Victoria is attracting resources away from the
Territory in 2018. traditional building sectors and is impacting pricing levels.
The national economy continues to gain While Queensland and Western Australia are recovering
momentum and recent surveys show growing from the collapse in mining, our offices in Brisbane and
optimism across the construction industry. Perth report growing confidence in private development,
Record levels of spend in infrastructure has in addition to the commencement of major infrastructure
triggered further investment in New South Wales projects. South Australia is also experiencing an increase
in the residential, retail, amenities and commercial in construction activity across both the public and private
markets, while engineering construction continues sectors.
to fuel price increases. Australian Capital Territory continues to perform well
Reflecting the high activity levels in New South with our Canberra office reporting high confidence levels
Wales, we forecast escalation to continue trending across all construction sectors. Like both Western Australia
at around 4.0%. With buoyant conditions prevailing and Queensland, the Northern Territory suffered from
in Victoria and ACT, we expect escalation levels the resources and mining collapse and is not expected
to trend at around 3.0% and 3.25% respectively. to experience Tender Price Escalation at more than
Tasmania is experiencing increased construction 2% during 2018. Our Hobart office reports increased
activity and escalation is forecast to be in the order construction activity in Tasmania, with plenty of work in
of 3.5%. Other regions are expected to have tender the pipeline. Tender Price Escalation is now forecast to be
pricing levels escalate at about 2% to 3%. around 3.5% pa over the coming years.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
3NATIONAL ECONOMIC
INDICATORS
NATIONAL ECONOMIC INDICATORS 112,604,310
112,379,101
112,153,892
111,928,684
111,703,475
111,478,267
111,253,058
111,027,849
110,802,641
110,577,432
110,352,224
110,127,015
109,901,806
109,676,598
109,451,389
109,226,181
109,000,972
108,775,763
108,550,555
108,325,346
108,100,138
107,874,929
107,649,720
107,424,512
107,199,303
106,974,095
106,748,886
106,523,677
106,298,469
106,073,260
105,848,052
105,622,843
105,397,634
105,172,426
104,947,217
104,722,009
104,496,800
104,271,591
104,046,383
103,821,174
103,595,966
103,370,757
103,145,548
102,920,340
102,695,131
102,469,923
102,244,714
102,019,505
101,794,297
101,569,088
101,343,880
101,118,671
100,893,462
100,668,254
100,443,045
100,217,837
99,992,628
99,767,419
99,542,211
99,317,002
99,091,794
98,866,585
98,641,376
98,416,168
98,190,959
97,965,751
97,740,542
97,515,333
8 97,290,125
97,064,916
96,839,708
96,614,499
96,389,290
96,164,082
95,938,873
95,713,665
95,488,456
95,263,247
95,038,039
94,812,830
94,587,622
94,362,413
94,137,204
93,911,996
93,686,787
93,461,579
93,236,370
93,011,161
92,785,953
92,560,744
92,335,536
92,110,327
91,885,118
7 91,659,910
91,434,701
91,209,493
90,984,284
90,759,075
90,533,867
90,308,658
90,083,450
89,858,241
89,633,032
89,407,824
89,182,615
88,957,407
88,732,198
88,506,989
88,281,781
88,056,572
87,831,364
87,606,155
87,380,946
87,155,738
86,930,529
86,705,321
86,480,112
86,254,903
86,029,695
85,804,486
85,579,278
85,354,069
85,128,860
6 84,903,652
84,678,443
84,453,235
84,228,026
84,002,817
83,777,609
83,552,400
83,327,192
83,101,983
82,876,774
82,651,566
82,426,357
82,201,149
81,975,940
81,750,731
81,525,523
81,300,314
81,075,106
80,849,897
80,624,688
80,399,480
80,174,271
79,949,063
79,723,854
79,498,645
79,273,437
79,048,228
78,823,020
78,597,811
78,372,602
5 78,147,394
77,922,185
77,696,977
77,471,768
77,246,559
77,021,351
76,796,142
76,570,934
76,345,725
76,120,517
75,895,308
75,670,099
75,444,891
75,219,682
74,994,474
74,769,265
74,544,056
74,318,848
74,093,639
73,868,431
73,643,222
73,418,013
73,192,805
72,967,596
72,742,388
72,517,179
72,291,970
72,066,762
71,841,553
71,616,345
4 71,391,136
71,165,927
70,940,719
70,715,510
70,490,302
70,265,093
70,039,884
69,814,676
69,589,467
69,364,259
69,139,050
68,913,841
68,688,633
68,463,424
68,238,216
68,013,007
67,787,798
67,562,590
67,337,381
67,112,173
66,886,964
66,661,755
66,436,547
66,211,338
65,986,130
65,760,921
65,535,712
65,310,504
65,085,295
64,860,087
3 64,634,878
64,409,669
64,184,461
63,959,252
63,734,044
%
63,508,835
63,283,626
63,058,418
62,833,209
62,608,001
Change
62,382,792
62,157,583
61,932,375
61,707,166
61,481,958
61,256,749
61,031,540
60,806,332
60,581,123
60,355,915
60,130,706
59,905,497
59,680,289
59,455,080
59,229,872
59,004,663
58,779,454
58,554,246
2 58,329,037
58,103,829
57,878,620
57,653,411
57,428,203
57,202,994
56,977,786
56,752,577
56,527,368
56,302,160
56,076,951
55,851,743
55,626,534
55,401,325
55,176,117
54,950,908
54,725,700
54,500,491
54,275,282
54,050,074
53,824,865
53,599,657
53,374,448
53,149,239
52,924,031
52,698,822
52,473,614
52,248,405
52,023,196
51,797,988
1 51,572,779
51,347,571
51,122,362
50,897,153
50,671,945
50,446,736
50,221,528
49,996,319
49,771,110
49,545,902
49,320,693
49,095,485
48,870,276
48,645,067
48,419,859
48,194,650
47,969,442
47,744,233
47,519,024
47,293,816
47,068,607
46,843,399
46,618,190
46,392,981
46,167,773
45,942,564
45,717,356
45,492,147
45,266,938
45,041,730
0 44,816,521
44,591,313
44,366,104
44,140,895
43,915,687
43,690,478
43,465,270
43,240,061
43,014,852
42,789,644
42,564,435
42,339,227
42,114,018
41,888,809
41,663,601
41,438,392
41,213,184
40,987,975
40,762,766
40,537,558
40,312,349
40,087,141
39,861,932
39,636,723
39,411,515
39,186,306
Dec 2006
-1 38,961,098
38,735,889
38,510,680
38,285,472
38,060,263
37,835,055
37,609,846
37,384,637
37,159,429
36,934,220
36,709,012
Sept 36,483,803
2017 34,231,717
36,258,594
36,033,386
35,808,177
35,582,969
35,357,760
35,132,551
34,907,343
34,682,134
34,456,926
34,006,508
33,781,300
33,556,091
33,330,883
33,105,674
32,880,465
32,655,257
32,430,048
32,204,840
31,979,631
31,754,422
31,529,214
31,304,005
-2 31,078,797
30,853,588
30,628,379
30,403,171
30,177,962
29,952,754
29,727,545
29,502,336
29,277,128
29,051,919
28,826,711
28,601,502
28,376,293
28,151,085
27,925,876
27,700,668
27,475,459
27,250,250
27,025,042
26,799,833
26,574,625
26,349,416
26,124,207
25,898,999
25,673,790
25,448,582
25,223,373
24,998,165
24,772,956
24,547,747
24,322,539
24,097,330
RBA Interest rates 23,872,122
23,646,913
23,421,704
23,196,496
22,971,287
22,746,079
22,520,870
22,295,661
22,070,453
21,845,244
21,620,036
21,394,827
21,169,618
20,944,410
20,719,201
20,493,993
20,268,784
20,043,575
19,818,367
19,593,158
19,367,950
19,142,741
18,917,532
18,692,324
National GDP (Quarterly Chain Volume Measure, Seasonally Adjusted) 18,467,115
18,241,907
18,016,698
17,791,489
17,566,281
17,341,072
17,115,864
16,890,655
16,665,446
16,440,238
16,215,029
15,989,821
15,764,612
15,539,403
15,314,195
15,088,986
14,863,778
14,638,569
14,413,360
CPI Inflation 14,188,152
13,962,943
13,737,735
13,512,526
13,287,317
13,062,109
12,836,900
12,611,692
12,386,483
12,161,274
11,936,066
11,710,857
11,485,649
11,260,440
11,035,231
10,810,023
10,584,814
10,359,606
10,134,397
9,909,188
9,683,980
9,458,771
9,233,563
9,008,354
8,783,145
8,557,937
8,332,728
8,107,520
7,882,311
7,657,102
7,431,894
7,206,685
6,981,477
6,756,268
6,531,059
6,305,851
6,080,642
5,855,434
5,630,225
5,405,016
5,179,808
4,954,599
4,729,391
4,504,182
4,278,973
4,053,765
Source: RBA; ABS; Quarterly trend review on GDP, CPI inflation, RBA cash rate. 3,828,556
3,603,348
3,378,139
3,152,930
2,927,722
2,702,513
2,477,305
2,252,096
2,026,887
1,801,679
1,576,470
1,351,262
1,126,053
900,844
675,636
450,427
225,219
The RBA has continued to maintain the official cash rate unchanged at 1.5%. The annual rate of inflation
remained below the Reserve Bank’s target with CPI falling to 1.8% in the September quarter. Australia’s
economy grew 0.6% last quarter and 2.8% over the past year, driven by increased activity in both investment in
private business and investment in public infrastructure.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
4NATIONAL CONSTRUCTION
INDICATORS
ABS data shows that the value of total construction However, this dramatic increase reflects the 90%
work done in the first three quarters of 2017 was surge in engineering work in Western Australia
$160 billion compared to the previous year total of from the June quarter, following the importation
$141 billion, an increase of approximately 13%. of large LNG platforms which are a contributing
factor to the ABS statistics, despite being
Overall, this period has seen building works constructed overseas.
completed increase by 5% as conditions for multi-
level apartments remain strong with construction According to CommSec, New South Wales has
companies continuing to progress through a backlog retained its position as the best performing
of work. Engineering work completed in this period economy in the nation with Victoria ranking
(March to September) has increased 18% reflective of second in construction work completed
strong levels of investment in public infrastructure. throughout 2017.
The June to September quarter shows total The September quarter saw Victoria’s completed
construction work rose by 16%. Engineering work construction work up 11% from a year ago,
increased for the third straight quarter and most boasting the strongest growth in 7 years, and 25%
recently by a record margin of 33%, surpassing the above its decade average. Construction work has
mining and resources boom final quarter of 2012. risen for the past 11 quarters in New South Wales
and 13 quarters in Victoria.
Sep-2017 VALUE OF CONSTRUCTION WORK DONE IN AUSTRALIA ($BILLION)
61,863,200 19.73% 27,621,800 2.31% 34,241,400 38.78% Sep-2017 61.86 19.73% 27.62
June Sept 0.82 0.95
55
residential $ 17,525,400 $ 18,102,400 0.97 3% 0.84 0.977
non-residential $ 9,471,500 $ 9,519,300 0.99 1%
50
$ 26,996,900 $ 27,621,700
45
40
35
141,495,600 76,764,900 64,730,700
30
159,949,800 80,845,900 79,103,900
0.88 0.95 0.82
25
20
15
10
5
0
2006 Quarterly Trend Review 2017
LEGEND
Engineering
Building
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
5NEW SOUTH WALES
The New South Wales construction hotels in the planning pipeline. The New South Wales
industry remains highly active These include The Ritz Carlton, Government policy of selling
across multiple sectors as we Star City Casino, Crown Sydney off underperforming or surplus
enter the new calendar year. WT Barangaroo, and the W Hotel assets over time has ploughed
anticipates that this activity will Ribbon and Residences. Strong significant funds into the Restart
continue in the medium-term demand in this sector can also NSW initiative. This has enabled
with major construction works be found in the suburbs where more funding for key infrastructure
underway, high value new projects approx. 800 rooms are currently projects, with record levels of
commencing and many more in under construction. investment committed to rail,
the pipeline. roads, healthcare and education
As usual, over the last 12 to 24
over the next 4 years. This again
The commercial sector remains months, the infrastructure sector
enables the infrastructure sector to
very strong in the CBD, with largely underpins much of the
be the star performer. The new and
growth also seen on the North New South Wales activity with the
improved infrastructure into our
Shore and Parramatta. As widely Western Sydney Airport joining a
communities is a natural trigger for
reported, commercial vacancy large list of other major projects.
further investment in residential,
rates continued to fall in the CBD, WSA Co have now set up office in
retail, amenities and commercial to
now at 6%, most noticeably in Sydney’s West with a commitment
suit the increasing local demand.
premium and A grade stock. Over to spend in 2018 as part of an
The Parramatta commercial sector
550,000m2 of new commercial Early Earthworks package at the
is a stellar example, with vacancy
space is due to be delivered Badgerys Creek site.
rates at zero for A grade space.
from 2018 onwards. Significant
State funds are being directed
commercial projects soon to WT anticipates investment in other
to the much-publicised
commence, or already underway, outlying areas such as the Hills
redevelopment of Sydney’s
include Quay Quarter, ATP, 60 District to grow quickly next year.
major stadiums at Moore Park
Martin Place and Parramatta Liverpool and Western Sydney will
and Olympic Park, and works at
Square. certainly see significant growth on
Parramatta Stadium are now well
the back of the Western Sydney
Tenancy fitout projects within underway. WT will be looking
Airport development.
these developments will continue keenly at pricing across the
to generate strong activity in the market, influenced by this sector, The residential sector is in the
workplace sector. As the nature of as major entertainment projects midst of the longest housing
work and the workplace continues have not run concurrently since construction boom in the State’s
to change, tenants are asking the lead-up to the 2000 Olympic history, and remained the nation’s
more from their leases by way Games. strongest State for home building
of co-lo work space, curated 3rd in 2017. Building approvals for
Together with the increase in
party spaces and increased shared residential units and houses have
early contractor involvement, the
amenities provided by Landlords, again seen year on year growth
pricing of alternative approaches
outside their tenancy. Leasing however, the rate of growth
to traditional reinforced concrete
models are also starting to shift, has recently declined. Although
structures are increasing. The
as the shared use of unused space construction activity is expected
prevalence of steel and cross
(out-of-hours tenancy sharing) to be strong in 2018, the sector
laminated timber (CLT) at
begins to garner market interest. is peaking, brought about in
feasibility and concept design
part by restrictions on foreign
The new hotel market, which has stages has increased noticeably
investment, housing affordability,
only seen modest activity over over the past 12 months. It will
and anticipated interest rate hikes
the past 10 years, has become be interesting to see how many of
in 2018.
increasingly strong and a growing these alternative approaches make
demand has paved the way for it beyond planning and if this
several high profile, high quality trend is set to continue.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
6NEW SOUTH WALES - continued
As in recent years, the growth in projects move into construction
labour rates has been above the and the Western Sydney Airport
EBAs placing continued pressure moves into the procurement phase.
on supply chains which need to
Overall, we are seeing a period of
pass on this increase. This is partly
strong market activity and growth
fuelled by the ever-widening gap
across several sectors. Whilst
between workload and workforce
the market has had some time to
and, with such a strong portfolio
respond to this increase in demand,
of projects on the horizon, shows
which has been forecast for some
little sign of change.
years, the shortage of skilled
We are currently seeing significant labour has contributed to the lag
trade pricing pressure across in closing the supply/demand
demolition, formwork, joinery and gap. This, along with significant
plasterboard trades. Federal and State funding, is one of
the most prominent factors likely
As forecast in earlier reports, the
to drive escalation in 2018 and
commencement of demolition
beyond.
works across some 16 commercial
office sites associated with the We forecast 4.0% pa for the first
Sydney Metro project is impacting half of 2018 across the whole
demolition contractor capacity. of the market, and anticipate
Formwork trades are returning escalation of 4.5% due to increased
pricing well above recent activity towards the end of 2018
benchmark rates and there is no and beginning of 2019.
suggestion that this is simply a
‘market spike’.
Joinery trades are nearing capacity
with contractors reporting
difficulty in obtaining sub-contract
quotes due to workload resulting
in large joinery packages being
tendered interstate.
Partitions and ceilings pricing has
been under pressure throughout
2017, and shows no signs of easing
in 2018.
Year on year to October 2017 we
have seen sharp increases in the
price of copper and iron ore. Whilst LEGEND
the market does not yet seem to
have felt the impact of these price Construction Activity
hikes, we anticipate the effects to
hit steelwork and hydraulics trades Key Performing Sector
in 2018. Building services trades
are likely to come under pressure Tender Price Escalation
throughout 2019/2020 as metro
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
7VICTORIA
There has been rising momentum Government investment in non- Whilst we don’t envisage this
in non-residential and non-mining mining infrastructure is coming ‘infrastructure affect’ will flow
infrastructure work underpinning to fruition with the widening through and create a directly
a Victorian economy which is of CityLink and Tullamarine proportional impact on building
preparing for a shift towards the freeways, Melbourne Metro Rail sector costs; the shared demands
provision of services in lieu of and Level Crossing Removal on some commodities, materials,
manufacturing. projects all underway. Net capital plant and equipment, and
expenditure in new engineering human resources will create cost
Consolidation of planning laws,
construction, by both the public increases.
lending protocols and foreign
and private sectors, increased by
investment this year had been Due to the momentum towards
8% (seasonally adjusted) in the
cited as reason for concern infrastructure, we have split
September quarter. This will be
in residential construction our escalation forecasts
further supplemented with the
growth, particularly apartments. into infrastructure and non-
West Gate Tunnel and North East
However, we have experienced infrastructure. The Tender
Link in the coming years.
continued developer appetite Escalation calculation forecast for
for apartments stimulated by This lift in major infrastructure non-infrastructure construction
consistent population growth and projects and particularly their has been revised to 2.75% to
low interest rates. We have also scale, is starting to put pressure 3.25% in 2018; and 3.25% to
seen a healthy increase in office on the market. Availability 3.75% in 2019. For infrastructure
projects in the pipeline or already of specialist consultants, projects, we foresee this to be 4%
underway. subcontractors, suppliers, plant to 5% in 2018; and 4.5% to 5.5%
and equipment is beginning in 2019.
The 2017/2018 State Budget
to tighten. We expect these
included major contributions
pressures to be further
towards health, education, public
exacerbated in 2018, which will
transport and roads. We are now
have wider ranging implications
seeing the investment in these
for the construction industry as a
sectors flowing into planning, pre-
whole.
construction and procurement.
Procurement of building materials
Recent tender results have been
was of greater concern to the
largely as expected, however
industry in the second half
there have been some examples
of 2017. As the pipeline of
of inconsistent pricing in the
infrastructure projects reach
reinforced concrete trades,
construction in parallel, there
precast concrete, structural steel,
will be large scale demand on
mechanical services and electrical
materials, especially concrete
services. We are also experiencing
aggregates, reinforcement and
a more percipient tender market,
steel. This will inevitably lead to
electing which opportunities to
cost escalation which will start
pursue, while balancing the higher
to flow to other sectors of the
volume of concurrent tenders.
industry.
This flows down to preferred
subcontractors whose ability to The short-medium term outlook
service the greater demand is for Victorian infrastructure projects
starting to effect competition. suggests that the total value of
works will peak between 2021 and
2023 giving time for the industry
to adapt to labour and material
pressures.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
8QUEENSLAND
The construction boom in multi- The Gold Coast construction Further infrastructure spend is
residential, particularly in the market continued apace with the forecast on ports and airports in
inner city suburbs and on the completion of the Commonwealth South East, Central and Far North
Gold Coast, peaked in 2017 Games Village on time for the Queensland together with further
and the pipeline of high rise overlay works to complete the expansion of the Gold Coast Light
residential developments has accommodation requirements Rail and upgrades to South East
slowed significantly. Oversupply, for the 6600 athletes arriving Queensland water supply assets.
diminishing returns, settlement in March 2018, together with With the improving prices of major
risk, and increased hurdles to the construction of various export commodities, increased
develop and purchase apartments sporting venues and supporting activity is expected in the mining
with the implementation of infrastructure works including the and resources sector and this
regulatory measures domestically Gold Coast Light Rail. is expected to attract building
and overseas, are reversing the resources from the traditional
Following Cyclone Debbie,
trend in high density residential build sectors.
reconstruction works brought a
development. Whilst numerous
flurry of building activity to Central The defence sector continues
apartment buildings are still under
Queensland and the Whitsunday to be strong with projects in
construction, tender enquiries
Islands which will continue Amberly, Townsville and Shoal
have dropped, and the traditional
into 2018. The State is prone Water Bay, flowing from Air Force
high rise residential builders are
to severe weather events and programmes and Army training
looking to other sectors to fill the
natural disasters, and these events facilities for the Singapore Defence
order books. Various residential
typically lead to spikes in demand Force.
builders and sub-contractors went
for construction resources leading
out of business in 2017 as a result
to localized, and sometimes State
of low-ball tenders in desperate
wide impacts on construction cost.
efforts to keep trading coupled
with poor cash flow. Our offices Activity in Central and Far North
are focused on the review and Queensland is expected to pick
monitoring of what may become up with a return of optimism,
stressed residential construction spurred by projects such as
contracts. the Townsville City Priority
Development Area, the Townsville
As previously reported, the surge
Stadium Precinct and Aurizon
in residential construction in
Rail yards urban regeneration, the
recent years led to significant
Hive development, and proposed
construction cost escalation driven
developments at the Casino
largely by the subcontract market
and waterfront. Cairns is also
capitalising on high demand levels.
experiencing a return of optimism
Low density, detached housing and
with various tourism projects,
townhouse building has continued
and the refurbishment of existing
to boom, and this sector is forecast
building assets.
to continue growing with further
development on the Sunshine Infrastructure spend and public
Coast, Brisbane’s South West and investment is forecast to increase
the Gold Coast region. The focus with the State Government’s
in multi residential has shifted budget focus on the Cross River
from investor entry level to a more Rail, social and affordable housing,
mature market with larger high- the Building Future Schools
end apartments in more exclusive Fund and Advancing Queensland
boutique style developments. Schools programme.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
9QUEENSLAND - continued
Despite the sharp decline in The market in Queensland should
development investment, the remain competitive, however the
completion of high density flight to the South and draw on
residential particularly in the construction labour, plant and
Brisbane inner suburbs and to materials to NSW and Victoria may
some extent the Gold Coast, will lead to further increases in tender
maintain high building activity levels.
levels into 2018. Queen’s Wharf
Tender Price Escalation trended
and other major developments
around 2.5 to 3% in 2017. Our
such as Herston Quarter, 300
forecast is that this trend will
George and No 1 Brisbane will
continue around this level for the
progressively draw construction
next year with a slight rise across
resources. The more recent
2019 as building activity increases
investment in high-end luxury
across various building sectors
living will also help to maintain
and reacts to increased demand
momentum in the multi-residential
from the infrastructure, mining and
sector. Detached home building
resource sectors.
and townhouse development is
also expected to continue strongly
with further development of
major new communities such as
Aura Caloundra South, Springfield
Lakes, Northlakes, the Brisbane
South West corridor and the Gold
Coast region.
Commercial office construction
has been in a lull since the
completion of major towers at 1
William Street, 480 Queen Street,
160 Ann Street and Southpoint,
plus the almost complete 900
Ann Street, all contributing to
record vacancy levels. Landlords
face falling rents and are offering
increasingly attractive terms by
way of rent free periods and fit
out incentives. The refurbishment
and re-positioning of commercial
properties to maintain and attract
tenants continues to be a key area
of construction activity. Suncorp,
ATO, Westpac and Technology One
are in the market for space, and
this has the interest of developers
racing to build Brisbane’s next
major commercial tower.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
10WESTERN AUSTRALIA
At the end of 2017, it appeared Whilst a large number of These sectors have projects
the Western Australia construction substantial high rise residential currently going through the cost
industry was in an overall stronger projects are at various stages of planning and feasibility stages.
position than Q4 2016. While the supply process, challenges We believe these sectors will
the State economy still faces remain for developers. However, not become fully active until Q4
significant challenges in the we believe that the overall activity 2018, however, given the volume
year ahead, there is certainly an in this sector will increase towards of works anticipated, they will be
increased sense of stability and Q4 2018, subject to external and major contributors to the local
confidence. domestic market corrections. construction market.
The retail sector continues to It appears that the resources
perform strongly, with 2018 seeing industry will see significant
significant projects commencing growth towards the end of 2018.
on site. These include Forrest If confidence continues to grow The overall outlook for the
Chase Redevelopment, Karrinyup around this sector, it will have Western Australia market is neutral
Shopping Centre and a number a positive effect on the overall to positive for the medium-long
of other major shopping centre economy. Major projects are term. This is more positive than our
expansions. We also expect most planned to commence in late previous report where the medium
of the major retail projects (over 2018/ early 2019, and the progress view was somewhat negative.
$200 million) that have been in (or otherwise) that this sector Whilst excess capacity still
the pipeline for the last couple of makes in the months/ year ahead, exists in the Western Australian
years to move to construction. As will greatly impact the overall construction sector, we believe
a result, we are seeing an overall construction output. The same much of this will be taken up in
positive effect on the sub $30 can be said regarding major 2018, at least in the Tier 1 and Tier
million size retail projects, as infrastructure projects in Western 2 space. Based on tenders received
well as smaller owners/ operators Australia. The State Government over the last calendar year,
moving to improve their offering. has given the green light to a escalation closed out at 1.1% with
number of road, rail and port Tender Price Escalation predicted
The hospitality sector is finally
projects such as “Metronet”. Whilst at 2% for 2018.
showing signs of recovery, at least
again this will bring confidence
for established brands eyeing new
into the market, many of these
offerings in the Perth metropolitan
projects are at the early stages and
area. We have seen sustained
are some way off from “breaking
activity in this sector over the last
ground”.
3 years which has lead to circa
4,500 keys added to the local In 2017, the official office vacancy
market in the past 24 months. We rate in Perth CBD was 21%. Whilst
believe this sector will continue better than previous quarters, it
to perform well, but the focus will was still a 20 year high based on
be on more boutique style hotels, official figures. This sector will
and likely include areas such as continue to struggle into 2018 as
Fremantle (to the south of Perth) a large amount of existing stock
and Scarborough (to the north of comes on the market.
Perth).
Other sectors that anticipate
major growth in the medium to
long term are defence, student
accommodation, aged care, private
health care and Department of
Justice.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
11SOUTH AUSTRALIA
Conflicting forecasts between Calvary Private Hospital, Queen ABS Price indices show an anaemic
economists and the construction Elizabeth Hospital upgrade, Lyell 0.8-1% price escalation over the
industry are evident and worth McEwin health hub, and numerous previous 12 months.
careful consideration. Whilst many aged care projects comprise the Recent shortages in scrap steel
in the industry are reporting low current health and aged care / from China have contributed to a
levels of unemployment and the aged living related sector. price increase in September and
expectation of wage breakout, The $330M Adelaide Casino November for steel reinforcement
some economists believe dark redevelopment was announced in of approximately 15%, concrete
clouds are over the horizon. July 2017 and tenders are about to supply costs have followed suit
The Australian economy has close. with approximately 3.5% increase
avoided recession on the back Student accommodation and CBD at the end of 2017.
of mining and housing booms apartment projects are in various National Tier 1 and Adelaide
that have peaked and are now stages of construction with a few Tier 1 contractors surveyed are
in decline. Interest rates have having broken ground, and more in forecasting up to 4% escalation for
remained low for record periods the pipeline. the new year citing many years of
spurring discretionary spending “catch up”. Whilst we believe there
There are a number of significant
from households resulting in high will be increased escalation, we do
defence projects currently under
household debt relative to GDP of not believe such a jump is likely.
construction and due to commence,
130%.
also numerous large retail projects Tender Price Escalation rates are
Recent construction activity in underway and starting in 2018. expected of 2-3% per annum for
Adelaide has been positive, with 2018 and maintaining similar
The South Australian Government
numerous cranes visible on the percentages throughout years
has announced the Building
skyline (the most in over a decade), 2019 and 2020.
Better Schools programme worth
and interest from interstate and
circa $679M to be undertaken in
overseas developers seeking
2018/19.
opportunities with lower land costs
than the Eastern States.
Adelaide contractors from the Tier
1 pool (ie. not national contractors)
are in general tendering with
sustainable margins, no longer
willing to tender with nil margin
to win cashflow projects. Adelaide
continues to suffer from reduced
competition because of a reduced
pool of qualified trade contractors
and lack of labour in key trades for
Tier 1 work.
Tier 2 and 3 contractors remain
very competitive, with little or no
margin tender submissions very
common. EBA labour cost increases
have generally been absorbed in
tender pricing for the time being.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
12AUSTRALIAN
CAPITAL TERRITORY
Confidence in construction Expectations in value for the With the current confidence levels,
remains high across all sectors commercial / retail / housing and we have adjusted our forecast for
for the foreseeable future, which aged care sectors of the market are Tender Price Escalation which is
continues the increased confidence all on an upward trend. Forward now forecast to be in the order of
from 2017. work schedules have increased, 3.0 – 3.25% in 2018 and 3.25 –
but there has been a slight drop in 3.5% for 2019.
The Canberra business sector
employment levels from 4.5% to
can see stability has returned in
3.3%.
local Government, with the recent
key Government appointments. Foreign investment and sales
However, the uncertainty created expectations are down again this
by the Federal Government in its quarter, but remain in line with
public service relocation program national indicators. Concerns
is evident in the market and remain about the Federal
starting to shake Canberra with Government’s ability to manage
office vacancy rates hovering and plan for growth, which is in
around 12%. stark contrast to views on the
Territory Government where
confidence is again on the
increase.
There has been an ease in
debt finance availability, but
sentiment remains negative with
the Australian Capital Territory
following the rest of the nation.
Concerns regarding an interest
rate increase have also settled
somewhat in the last six months.
Contractors continue to report
that the market is keen for work
with numerous subcontractors
responding to requests for pricing.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
13TASMANIA
Hobart construction activity is Civil works projects including In the immediate future,
currently elevated. A number of the major highway link between hotels are expected to be the
large construction projects such as Hobart and Launceston strongest performing sector
NRAS apartments, Mac 01 Hotel, are underway, and various with developments throughout
Ibis Hotel and Parliament Square infrastructure and large subdivision the State. As larger UTAS
Stage 1 are now complete. projects are being planned. projects come on line next year,
Universities / Education are
Some of the larger projects Future activity throughout the
expected to be a key sector.
currently underway include State is expected to keep the
the Royal Hobart Hospital market at capacity. There are The domestic housing construction
Redevelopment, UTAS Hedberg a significant number of large sector is currently buoyant spurred
Performing Arts project, Myers construction projects which are on by the recent performance of
Stage 2, Parliament Square Stage 2 expected to come on line next year the residential sales within the
works and Mona extension works. throughout the major centres of State. The aged care sector is
The Hyatt Hotel development is the State and also within regional also currently active as aged care
expected to start during the first areas. providers seek to increase capacity
half of 2018. of their facilities and lifestyle
In addition, there are a number
villages to keep up with the
There are a substantial number of future developments including
forecast demand.
of large projects which are UTAS Science Technology and
currently in planning stages Mathematics development within The Education Department is
including Kangaroo Bay Hotel Hobart CBD, the redevelopment rolling out projects within the
and Hospitality Training School, of the former Hobart Railyard State which are generally going to
Federal Hotels Port Arthur Resort, site on Macquarie Point, and the both Tier 1 and Tier 2 contractors.
several Fragrance Group Hotel UTAS Launceston City campus
projects and various other hotel development.
developments.
There are a large number of Tender Price Escalation for the
smaller scale developments from past year was around 3%.
private investors, the Department
The tender rise forecast is based
of Health, and the Education
on reasonable spread of future
Department now underway or
workloads. If all predicted projects
due to start next year which are
come on line concurrently, then
currently occupying both Tier 1
this could saturate the market and
and Tier 2 contractors.
cause a sudden spike in tenders.
The north of the State has seen
The Tender Price Escalation rates
a growth in construction activity
are therefore expected to be
with contractors reaching their
around 3.5% pa for the next 3
capacity. Larger projects in
years.
Launceston include the Silo Hotel,
CH Smith Site development and
the Boral Plant.
Regional areas of the State also
have significant developments.
Construction work has started on
the St Helens District Hospital on
the East Coast, and the Devonport
Living City development.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
14NORTHERN TERRITORY
The Northern Territory economy, The average employment growth Based on the above, our outlook
and the growth it experiences, are rate is forecast at 1.8% over for the Northern Territory
closely tied to the global, rather the next 5 years, which can be construction market is steady for
than the domestic, economy. The attributed to a steady stream of the short term, but could become
construction industry remains the non-residential projects to further more positive should various
largest industry contributor within support the construction sector up projects come to fruition. We are
the Territory economy. The value until 2020. The $13 billion Greater of the opinion that escalation will
of this construction sector has Sunrise floating LNG project, led be around 2.0% over 2018 rising
surpassed historical levels due by Woodside, is still a possible to around 2.5% in 2019.
to the development of the INPEX new development, which has the
LNG gas project. potential to stimulate activity.
The project currently remains
This project is approaching the
on hold, as discussions between
completion phase of construction,
the Australian and East Timorese
and will soon enter the beginning
governments continue. There are
of the production phase. The
another two gas projects, worth
effect of this project and the
close to $3.5 billion, also awaiting
adjustments needed to shift
approval. Commercial construction
into the next phase can be seen
projects currently underway
through a gradual increase
include the Darwin City Waterfront
in unemployment, leading to
development, worth $0.9 billion,
sluggish retail expenditure, only
and a $0.5 billion upgrade of the
increasing by 1% this quarter as
HMAS Coonawarra and Larrakeyah
compared to 2.9% nationally.
Barracks. Works are also due to
start later this year on the $0.25
billion Westin hotel at the Darwin
Waterfront.
In the 2017/18 State Budget, the
government is expecting operating
deficits until 2020/21, however
spending on infrastructure worth
$1.75 billion should assist in
supporting economic growth.
This is a miniscule investment in
comparison to the Inpex Ichtys
project. The prospect of new
developments creates an air of
cautious optimism for investors
and tenderers, and should help to
offset downturns experienced by
the completion of the major boost
that was the INPEX LNG project.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
15TENDER PRICE ESCALATION
FORECASTS
WT TENDER PRICE ESCALATION FORECAST WT AVERAGE TENDER PRICE ESCALATION
AUSTRALIAN AVERAGE
140
VIC
135
NT
130
120 TAS
125 NSW
115 120
ACT
115
QLD
110
110
SA
105
105
100
100 95
WA
90
95
85
80
90 2006 2019
85
2019
2006
The above graph index is set at 100 for September 2008. The above graph does not reflect the relative cost
Recorded data and forecasts are based on tenders for large differential between the different States and Territories.
building construction projects (value $20 million to $300
million).
WT AVERAGE TENDER PRICE ESCALATION
NSW VIC QLD WA SA ACT TAS NT
2006 4.6% 4.2% 5.9% 12.0% 6.3% 6.3% 5.9% 9.1%
2007 4.6% 4.5% 5.5% 10.9% 7.6% 6.0% 5.1% 7.4%
Actual
2008 4.0% 5.1% -0.7% -2.8% 5.4% 4.6% 5.2% 3.5%
2009 -4.4% 1.6% -3.6% -5.7% 2.0% -1.9% 4.7% 3.3%
2010 0.6% 2.8% 0.5% -2.1% 2.0% 2.3% 4.1% 1.8%
2011 1.0% 3.0% -1.0% -2.7% 1.0% 1.5% 0.2% 1.7%
2012 0.0% 1.5% 1.0% -1.6% -10.0% 0.8% -2.9% 3.0%
2013 1.3% 2.0% 1.0% 0.6% 1.0% 0.8% 0.0% 3.1%
2014 3.5% 2.5% 3.0% 2.0% 1.3% 0.5% 1.0% 2.2%
2015 5.0% 3.0% 4.0% 1.4% 0.0% 1.5% 1.8% 2.2%
2016 4.0% 2.5% 3.0% 2.0% 2.0% 2.0% 3.5% 2.1%
2017 4.0% 3.0% 2.5% 1.5% 2.0% 2.5% 3.0% 2.0%
Forecast
2018 4.0% 3.0% 2.75% 2.0% 2.5% 3.25% 3.5% 2.0%
2019 4.5% 3.5% 3.0% 2.5% 3.0% 3.5% 3.5% 2.5%
The above indices reflect capital city CBD and metropolitan construction costs.
WT REVIEW OF AUSTRALIAN CONSTRUCTION MARKET CONDITIONS 2018
16WT PARTNERSHIP IS AN AWARD WINNING INTERNATIONAL
COST AND CONSULTANCY PRACTICE.
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CONTACT US
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PERTH
BRISBANE Scott Parrott
Craig McHardy T: +61 8 9202 1233
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E: cmchardy@wtpartnership.com.au
SYDNEY
CANBERRA Nick Deeks
James Osenton T: +61 2 9929 7422
T: +61 2 6282 3733 E: ndeeks@wtpartnership.com.au
E: josenton@wtpartnership.com.au
TOWNSVILLE
GOLD COAST Jason Dixon
Jason Thornley T: +61 7 4722 2760
T: +61 7 5591 9552 E: jdixon@wtpartnership.com.au
E: jthornley@wtpartnership.com.au
WT CONSULTANCY
HOBART Nic Mills
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Lee Deacey
E: nmills@wtconsultancy.com.au
T: +61 3 6234 5466
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www.wtpartnership.com.au
NOTE ON APPLYING TENDER PRICE INDICES DISCLAIMER
A number of project specifics should be considered when reviewing WT Partnership will not in any way be liable to any person or body for
tender price escalation forecasts including, but not limited to, the any cost, expense, loss, claim or damage of any nature arising in any
procurement route, size, complexity, location and risk. Equally, the way out of or in connection with the information, opinions or other
keenness of tenderers is important in terms of pricing and this will be representations, actual or implied contained in or omitted from this
driven by issues such as local market dynamics, workloads, hotspots and
paper or by reason of any reliance thereon by any person or body. This
realisable margins. With the current uncertainties in the local, national
paper is not business or investment advice and persons should seek
and international arenas, it is important to continually monitor the market
their own independent professional advice in relation to construction
and review escalation allowances. Clearly, it is very difficult to predict
future escalation over the next few years therefore the advice is offered costs and price indices. No representation or assurance is given that
for guidance purposes only. any indices produced, used or referred to are accurate, without error
or appropriate for use by persons.
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