OCEANIA REPORT MARKET INTELLIGENCE - FMHOUSE€¦ · innovations to deliver full property solutions for clients across a number of sectors. Services provided include Cost Consultancy,

CONSTRUCTION MARKET INTELLIGENCE

OCEANIA REPORT

Fourth Quarter 2013

Disclaimer: While the information in this publication is believed to be correct at the time of publishing, no responsibility is accepted for its accuracy. Persons desiring to utilise any information appearing in the publication should verify its applicability to their specific circumstances. Cost information in this publication is indicative and for general guidance only and is based on rates as at September 2013. National statistics are derived from the Australian Bureau of Statistics (ABS) and Statistics New Zealand.

Cover: Brisbane, Australia

Rider Levett Bucknall continues to build on its research capabilities providing timely snapshots of construction market

conditions and price movements across the globe.

The RLB Crane Index™ is being published on a six monthly basis. By counting the crane's populating the skylines of our

major cities, the Index gives a quick and simple indication of the strength of the construction economy.

We recently sponsored the World Architecture Festival in Singapore. A number of RLB projects at home and abroad

were award recipients with the Brisbane River Ferry Terminals and The Australian Garden in Melbourne featured in this

report.

Nominations are now open for the Property Council of Australia Rider Levett Bucknall Innovation & Excellence Awards

and the Property Council New Zealand Rider Levett Bucknall Property Industry Awards.

In recognition of achievement in commercial property excellence, we will again sponsor these prestigious national

awards programs, heralding the achievements of the sector.

We take great pride in presenting the Australian Winner and the Supreme Award – the most prestigious Awards for

worthy property developments in Australia and New Zealand.

Past winners of these awards have become benchmarks for excellence in the commercial property industry, ensuring

high standards of commercial viability and satisfaction of the needs of owners, investors, developers, managers

and users.

We encourage you to nominate your properties to enter the 2014 awards.

For more information visit www.rlb.com/news

INDEPENDENT CONSULTANTS, LOCAL KNOWLEDGE AND ExPERTISE, GLOBAL NETWORK

RIDER LEVETT BUCKNALLRider Levett Bucknall is an independent property consultant, providing advice focused on the cost, quality and sustainability of the built environment. It has over 3,500 staff operating from more than 120 global offices.

The firm’s philosophy is to combine global best practice with local know-how, utilising the latest cost data and innovations to deliver full property solutions for clients across a number of sectors. Services provided include Cost Consultancy, Project Management and Advisory.

THE OCEANIA REPORTThe RLB International Report is published twice-yearly and provides detailed regional and local construction market intelligence and data compiled from our network of offices.

CONsTRUCTION MARKET INTELLIgENCEThe Oceania Report is supplemented by a bi-annual International Report, quarterly NZ Forecast and annual Riders Digest.

Rider Levett Bucknall | Oceania Report – Fourth Quarter 2013 3

The Oceania Report, covering Australia and New Zealand, provides

a half-yearly snapshot of construction market conditions and price

movements in Australia and New Zealand, via commentaries and analysis

from RLB directors in each location.

A broad overview of construction market intelligence in Australia is

provided on page 4, followed on pages 6-17 by commentaries from

RLB directors in eight key locations across the country.

An introduction to construction market intelligence in New Zealand

is included on page 19, with detailed commentary for each of three

principal New Zealand markets on pages 20-23.

Tender price trends and tender price relativity analysis are provided on

pages 24 and 25. Data from the foregoing analysis informs the market data table, shown on page 25, which tracks tender price movement since

2003 and forecasting out to the end of 2014.

RLB's construction market activity cycle model, on page 26, shows our

view of levels of activity in each of seven sectors of the construction

industry, in terms of relative levels of activity within an economic cycle.

These views are analysed numerically in the charts shown on page 27.

The Oceania Report is a member of a suite of reports produced by RLB.

Currently, the suite comprises the Caribbean, European, Gulf States,

Hong Kong and China, Oceania, Singapore, USA and Vietnam reports, as

well as the International Report, which is a global overview document.

Each document has its own unique flavour, driven as they are, by the

conditions and circumstances of the particular economy in question.

All are available at rlb.com. The RLB Intelligence smartphone app

and the desktop webapp, available at rlbintelligence.com, features

international construction relativities, historical and forecasted RLB

tender price index and a construction cost indicator.

OCEANIA REPORT

Rider Levett Bucknall | Oceania Report – Fourth Quarter 20134

CONSTRUCTION MARKET INTELLIGENCEAUsTRALIA

The Australian economy is now in

its twenty second consecutive year

of economic growth including the

period of the Global Financial Crisis.

The increase in mining sector activity

over this period, primarily driven by

urbanisation in China, has allowed

Australia to maintain this prolonged

period of economic growth.

However, as the capital intensive

mining investment phase has

reached its peak and transitions into

the extraction and production phase,

Australia’s economy will face a more

challenging time. The economy will

need to rebalance its growth drivers,

so that the residential sector and

non-mining business investment

takes over the recent reliance on

mining capital investment. This

transition will not be without some

pain and the fragility in both business

and consumer confidence underlies

the difficulties ahead.

The outcome from China’s

Communist Party Plenum planned for

November 2013 could have dramatic

influences on the Australian and New

Zealand economies in the future. The

world’s eyes have been on the US

politics these past few weeks, but

what's going on in China could have

greater implications for Oceania.

The United States’ national savings

are about US$2.7 trillion, in China

they amount to US$4.2 trillion. If this

capital is allowed to be ‘exported

legally’, there could be significant

Chinese investment hitting global

markets. A proportion of such

investments would presumably find

its way to our region in the years

ahead.

China's expanding middle class is

increasingly seeking to educate its

children to schools abroad. Their

money, if it's allowed to follow their

children, will probably not go into US

Federal Bonds like China's foreign

exchange reserves, but rather will

go directly into property markets in

Australia, New Zealand, United States

and United Kingdom or listed shares

around the world, potentially driving

up prices.

READ EMAIL

ABOUT THE

gRAPHs

The Reserve Bank of Australia

(RBA) noted in its October 2013

meeting, that recent domestic

data had broadly come in line with

its expectations. The Australian

economy is growing below trend and

conditions in the labour market are

soft. The RBA noted that “consumer

confidence was above average

levels and business confidence had

increased, although it remained to

be seen if this would be sustained.” It

stated that “the effect of low interest

rates was evident across a range of

indicators and had further to run.”

The RBA cited the housing market,

both prices and leading indicators

of dwelling investment, as evidence

of this. On a more positive note,

the RBA indicated improvement

in prospects for investment in the

tourism sector and that retail sales

picked up in September.

Construction work continues to

display long term growth from a

historical perspective. In all mainland

states and territories, construction

work is higher than decade averages.

Furthermore, there remains a

significant gap between the

strongest and weakest performing

states. Looking at the past twelve

months however, total Australian

construction work done has declined

comparing the (6) six months to

June 2013 to the (6) six months to

December 2012.

In Tasmania, overall new construction

work completed is 9.7% below

its decade average. By contrast

construction work done in Northern

Territory was 72% above its decade

average, followed by Western

Australia (up 65%) and Queensland

(up 45%) mainly due to significant

increases in mining and engineering

construction work.

auStraLIa VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

-60%

140%

100%

60%

20%

0%

-20%

HOUSES APARTMENTS RETAIL OFFICES INDUSTRIAL EDUCATION HEALTH

auStraLIa VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-20%

5%

-10%

0%

RESIDENTIAL NON-RESIDENTIAL TOTAL

PRIVATE PUBLIC


Whilst we have seen the peak in

mining investment, we believe

the total ongoing investment in

the mining sector will stabilise

for the present. Numerous long-

term liquid natural gas (LNG)

projects are currently underway

in Northern Territory and Western

Australia. These developments

are still in the capital intensive

phase of establishing facilities and

infrastructure. There are at present

no new significant new mining

developments being commenced.

The modest decline in engineering

construction activity over recent

periods rather than a sharp fall fits in

with this mining investment plateau.

Therefore, negative influences

on gross domestic product

(GDP) growth from falling mining

investment are still some way off.

This means that the non-mining

economy has more time to make

a pronounced pick-up. Western

Australia often bears the brunt of

negative commentary surrounding its

past strong mining sector so it was

positive to see a lift in engineering

construction by 4.3% in the State

over the quarter. LNG construction

in Northern Territory is boosting

Territory outcomes, with engineering

construction activity lifting by 6.7%

over the quarter.

Strong population growth, by

way of higher birth rates and net

migration inflow, is adding to strong

housing demand in all states. At

the same time, a significant level of

residential underbuilding over the

past few years has led to “excess

demand” for dwellings in Australia.

Demand for dwellings has averaged

around 170,000/year over the past

decade, however, supply of dwellings

(construction) has run at around

154,000/year. The Australian capital

city-average dwelling price increased

5.5% in the year to September 2013,

according to RP Data-Rismark. This

is a significant improvement on the

1.2% decline in the year to September

2012, with lower interest rates

boosting affordability.

The outlook for housing construction

has improved across Australia.

Dwelling starts are above decade

averages in (5) five of the states

and territories and construction

commencements in (6) six states and

territories are above levels of a year

ago.

The Northern Territory had

residential commencements almost

52% above decade averages. In New

South Wales, dwelling starts in the

June quarter were up 19% on the

‘normal’ or “decade average” level

with starts in Western Australia up

almost 14% on decade averages and

Victoria up 0.8%.

At the other end of the scale,

Tasmanian dwelling starts were 37%

below decade averages, while starts

in the June quarter were 20% down

on a year earlier.

Director Stephen Ballesty

+61 2 9922 2277


Location inteLLigenceAUSTRALIA


Brisbane Ferry Terminals Post-Flood Recovery (Australia), designed by

Cox Rayner Architects won the Future Projects Infrastructure category at

the 2013 World Architecture Festival.



ADELAIDE The South Australian economy has

been through challenging times,

with its key manufacturing sector

under continual pressure from

the persistently high Australian

dollar. However the recent fall will

provide some welcome relief for

the manufacturing sector and other

export oriented sectors, including

education, tourism and agriculture.

House prices in South Australia

have stabilized over the past year,

although the recovery has been less

pronounced in comparison to other

states.

The ABS also points to a sluggish

housing market in Adelaide, although

recent data has shown improvement.

Slower population growth and a

softer labour market in comparison

to other states have likely

contributed to the weaker housing

growth in South Australia.

Although residential building has

been weak, South Australia is not

facing the same shortfall in the

supply of housing like other states.

This has been thanks to an extended

period of strong building activity

in the early 2000s. Additionally,

a pullback in migration flows has

dampened the underlying demand

for housing in South Australia.

Moving forward lower interest rates

will help to support the housing

sector.

In commercial construction, activity

is continuing to be led by the AU$1.8

billion Royal Adelaide Hospital, where

work is expected to continue through

to 2016. Abstracting from the Royal

Adelaide Hospital, however, the near-

term pipeline is limited.

Major projects in construction include

the AU$400+ million redevelopment

of the Tonsley precinct, AU$350

million Adelaide Convention Centre

Redevelopment, AU$70 million

Savings & Loans Office Development,

with future projects including the

AU$240 million redevelopment of

Skycity Casino and AU$125 million

Adelaide University Integrated

Clinical School and AU$200 million

Uni SA Health and Cancer Research

Building. Difficulties in retail and

manufacturing sectors and soft

employment growth are weighing on

office, retail and factory construction.

There is prospect for improvement

in construction activity with a

falling Australian dollar and lower

borrowing costs, which should

support economic activity. South

Australia’s significant mining

potential indicates that the long-term

prospects for business investment

growth remain promising. Despite

the delay to its expansion project,

Olympic Dam is still resource rich,

and remains a potential source

of investment, employment and

economic activity.

Managing Director Peter Tulla

+61 8 8100 1200

Sa VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

-60%

140%

100%

60%

20%

0%

-20%


Sa VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-10%

20%

15%

10%

5%

-5%

0%


PRIVATE PUBLIC



BRIsBANENon engineering construction work

done over the past 12 months (AU$

15 billion seasonally adjusted) is at

its lowest level since 2005 and the

pipeline of future projects provides

significant concerns. This concern

for future workflow has resulted in

construction costs being at their

lowest level since September 2005,

thus providing a prime opportunity

for developers to commence

construction.

The private sector has failed to

replace the government stimulated

construction and infrastructure

programs from the past few years,

with contractor concerns regarding

diminishing workloads looking to

increase through the remainder of

2013 and 2014.

Margins are still being placed under

pressure with elevated competition

for work. In the context of general

levels of CPI, the lack of a pipeline

of future work will maintain the

cost competitiveness of building in

Brisbane for the foreseeable future.

However, the ability of the industry

to continue to absorb cost increases

from EBA’s, exchange rate and

movements is questionable.

There are signs of optimism in the

residential sector, with interest rate

cuts and the first-time buyer’s grant

commencing to stimulate buyers,

with strong sales in the past (2) two

months.

The inner-city apartment sector,

which is gaining strength and, looking

forward, the State Government have

short-listed (3) three bidders for the

Commonwealth Games Village that

will involve the construction of more

than 1,000 apartments at the village

site.

The non-residential sector has seen

a number of significant projects

committed, including 1 William Street,

180 Ann Street and 480 Queen Street

as well as the expansion of Westfield

Garden City. There are also a number

of potential projects emerging,

including the Queensland Schools

PPP, Grand Central Toowoomba,

Pacific Fair Redevelopment and

potentially four (4) new private

hospitals in South East Queensland.

The State Government is still

supporting the construction industry

with several key projects, including

the Sunshine Coast University

Hospital, Brisbane’s 1 William Street

Office Building, Brisbane Ferry

Terminals and the Gold Coast

Commonwealth Games.

Director Paul Megram

+61 7 3009 6933

QLD VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

-60%

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100%

60%

20%

0%

-20%


QLD VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-50%

5%

-10%

0%

-30%


PRIVATE PUBLIC



CANBERRAThe Canberra construction market

will continue to experience lean

times in the short-term, with

more discerning signs emerging

in recent months. Any turnaround

in the construction market will

largely depend on the performance

and agenda of the new federal

government.

The value of non-residential

building approvals has averaged

AU$174m per quarter over the past

(9) nine quarters. The March and

June quarters are well down on

the medium-term averages, being

AU$148 million and AU$109 million

respectively, however, a slight

pickup in the September quarter saw

approvals slightly above the past (2)

two years quarterly averages.

Construction work done has

trended at similar levels over the

past two (2) years, however, the

slowing of approvals will have an

impact on the levels of work done

in the coming years due to the lag

between approvals and construction

commencements.

The residential market had a strong

performance with the number of

residential building approvals in the

(9) nine months up to September

2013. As part of a tax reform policy,

the ACT government has decided

to accelerate the rate of reduction

of conveyance duty. This, combined

with low interest rates, may provide

an impetus to the residential housing

market.

The uncertainty about Public Service

jobs cuts, the possible relocation or

merging of government departments,

and the length of time this is taking

to implement, is affecting confidence

for residential developers. Similarly,

Public Service budget cuts and

efficiency dividends are weighing

heavily on commercial developers

with many taking a “wait and see”

stance. For Canberra, this dip in

confidence is not unusual when there

is a change of federal government.

Director Mark Chappé

+61 2 6281 5446

aCt VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

-60%

140%

100%

60%

-20%

20%

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aCt VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

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PRIVATE PUBLIC



DARwINThe Ichthys LNG project is

having positive flow-on effects

to consumption growth in the

Northern Territory economy. The

long duration of the project means

that consumption growth will remain

elevated. Motor vehicle sales remain

high, with general retail sales growth

persistently low. Lower interest

rates are having a positive impact on

housing activity, with higher levels of

housing approvals and lending.

Spending continues to be supported

by high levels of business investment.

Spending will remain at an elevated

level for the next couple of years

while construction activity continues.

LNG plant construction is boosting

building and infrastructure capital

spending. Business investment will

remain at a historically high level

over the next two (2) years.

Territory employment is being

supported by mining construction.

The unemployment rate has risen

over the past few months but

remains below the national average.

Inflation is being driven up by wage

costs associated with the LNG

Ichthys project. As construction

becomes less labour intensive, wage

costs and inflation will slow. Inflation

in Darwin is well above the national

average as a result of wage pressures

from the mining sector.

There is activity on a number of

fronts including major infrastructure,

civil, industrial and residential

sectors, primarily with the major

infrastructure projects paving the

way for growth in the other market

sectors. However, the longer term

job forecast is not as optimistic,

which is resulting in a more cautious

approach to project pricing.

As the market absorbs the current

workload through a mix of existing

capacity and migrating labour

resources, we are seeing lower than

expected price increases which we

anticipate will be under CPI for the

current year. We forecast higher

pricing in the oncoming years.

The fact that the Darwin economy

is performing better than most of

its national counterparts has seen

a net migration and increase in the

workforce, thereby mitigating price

increases resulting from increased

demand for construction resources.

Director Paul Lassemillante

+61 8 8941 2262

Nt VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

-60%

140%

100%

60%

20%

0%

-20%


Nt VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-80%

20%

-20%

-40%

-60%

0%


PRIVATE PUBLIC




The Australian Garden, Royal Botanic Gardens, Cranbourne VIC designed by

Taylor Cullity Lethlean with Paul Thompson won the Landscape category at the

2013 World Architecture Festival. Photography: John Gollings



MELBOURNEDue to the diversified nature of

its economy, Victoria has shown

more stability than many of the

other states over the past years

without large peaks and troughs.

While there are several areas of

potential growth, there remains a

number of inherent weaknesses in

the Victorian economy. Tightening

monetary policy from the State

government will continue to restrain

both government spending and

investment for some time. There are

very few public sector investment

projects currently underway and any

projects that may come online will

take a number of years to get up

and running, putting pressure on the

private sector to ensure continuity of

projects.

Lower interest rates and improved

consumer sentiment are expected

to underpin improvement in

the residential property market.

Residential approvals remain at a

relatively high level but are slowing

down in response to the number

of apartment towers commencing

construction and being completed.

High levels of vendor demand

indicates construction levels will

remain strong.

Due to the non-reliance on the

mining industry, Victoria has been

much more resilient to labour

market weakness as a result of

its more diversified industry base.

Employment levels have been strong

with unemployment rates only

marginally higher over the past year.

Even with a large exposure to the

manufacturing sector, employment

levels are holding and wage growth

is contained. The lower Australian

dollar will benefit manufacturing

exports but the fluctuating

currency may lead to uncertainty,

providing more stress on an already

underperforming sector.

We are seeing competitive tendering

within the construction marketplace.

Pricing is tight with minimal pricing

increases seen for the previous six

(6) months. Continuity of work is

seen to be a high priority with a

number of key projects coming

onto the market. Pricing within the

mid-range sized projects (less than

AU$50 million) is competitive, with

the winning of medium-term work

being a priority for builders. Securing

sustainable levels of work for 2014

is a key driver of the minimal pricing

increases we are experiencing.

All market sectors have potential

for strong growth over the next few

years with significant projects being

developed within the retail, industrial,

commercial and civil sectors. Low

interest rates, the bank’s appetite

for debt and general business

confidence will all have an influence

on the outcome of proposed

projects.

We are forecasting a minimal uplift

(almost zero at 0.2%) in tender

prices during 2013, 1.8% in 2014 and

increasing in 2015 to 3%.

Director Mark Lochran

+ 61 3 9690 6111

VIC VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

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VIC VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-30%

5%

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-10%

-20%


PRIVATE PUBLIC



PERTHThe State government has made a

large commitment to major projects

in health and infrastructure including

Perth Waterfront, New Perth

Stadium, Perth City link and new Bus

Station. Private investment in multi-

residential projects and retail appears

to be increasing and financial

institutions appear to be backing a

greater number of projects (albeit

with significant hurdles still in place).

Brief sector summaries are:

• Commercial Offices: a number of

projects have recently commenced

on the back of some pre-leasing

commencements.

• Health: numerous projects, both

public and private, are currently

under construction.

• Residential: shows positive signs

as early activity begins, particularly

in the multi-residential sector.

• Retail: increasing activity with

some new centres and significant

expansion and refurbishment of

existing centres. There appears

to be little activity in strip or

standalone retail.

• Hotels: there are numerous

projects under consideration but

comparatively little ‘committed’

projects at this stage.

• Civil / Infrastructure: continues

to have reasonably high work

volumes. Perth and Jandakot

airports show continual activity.

• Resources sector: although current

activity remains at a high level,

commencement of new projects

has slowed significantly.

Over the past three (3) years

escalation has remained relatively

static due to the influence of lower

than desired work volumes; increased

competition amongst builders; low

tender margins; wages pressures;

and increased value of imported

materials and pre-fabricated

components. We note that over

the last 18 months numerous sub-

contractors and some builders have

experienced financial stress and, in

some cases, failure.

The construction industry in Perth

currently has “surplus capacity” in

most trades and tender pricing is

generally very competitive. This

is particularly so at the small to

medium projects (up to AU$50

million) end of the scale and slightly

less so at the upper end. The known

future projects are predominantly

at the larger end of the scale and

competition for medium and smaller

projects is likely to remain fierce in

the short-term.

For projects with construction values

above AU$80 million, the contractors

have a smaller pool of suitable

sub-contractors to draw on and the

pricing in this sector currently does

not experience the same level of

competition as projects below this

value.

The multi-residential market is

currently showing increased levels

of construction activity and this is

expected to feed construction in this

sector over the next few years.

Currently, structural concrete sub-

contractors for projects in the

higher range appear to have little

surplus capacity due to the recent

commencement of a number of

office towers and residential projects.

Some price pressure on concrete

structural pricing is anticipated for

structural work commencing in the

next six (6) months.

Director Alastair McMichael

+61 8 9421 1230

Wa VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

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60%

20%

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Wa VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

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25%

20%

10%

-10%

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PRIVATE PUBLIC



syDNEy Our previous cost commentaries in

2013 have reported an increase in

confidence for new projects, both at

the early planning and construction

commencement stages. This

sentiment has continued and recent

economic surveys have confirmed

increasing confidence in the

construction sector within NSW.

Increased residential development

activity in the Sydney market is

now a reality. Proposed residential

developments are achieving presale

commitments which allows financiers

to commence development funding.

Examples of this strong interest are

being regularly reported for projects

near the harbour or major public

transport connections.

The recent released RLB Crane Index

commented upon the increased

numbers of cranes across the Sydney

metropolitan area and that up to

70% of the cranes erected in these

areas are being utilised on residential

projects.

With the information available, it

appears that the current level of

residential activity will be maintained

or increased into 2014. However,

we note the variability in building

approvals as reported by the ABS,

for the residential sector continues to

fluctuate on a month to month basis.

Construction contractors report they

believe there is a capacity within the

industry to service current activity

levels.

The non-residential sector continues

to offer opportunities for smaller

to medium sized contractors. The

last quarter has provided few

opportunities for major projects

exceeding AU$50 million. However,

opportunities in large size projects

are likely to increase in 2014 as

clients complete and confirm pre-

development studies for potential

projects in the commercial, hotel and

retail sectors. For the remainder of

2013, non-residential opportunities

will continue in the industrial, health

and aged sectors of the industry.

The ABS Producer Price Index for

the second quarter of 2013 recorded

an overall 0.6% increase in the

Building Construction Sector. Our

investigations over recent months

have identified selected steel

products have risen 3%, formwork

pricing increases of up to 5% are

beginning to be seen and selected

hydraulic and air conditioning

materials have increased 10%.

With the published forecasts

indicating that construction activity

levels will increase, it would appear

that the period of price stability will

be ending.

One component of the likely rise

in construction pricing is exchange

rate fluctuations of the Australian

dollar against the US dollar falling

over the next six (6) months.

These fluctuations continue to be

of concern due to the increasing

number of construction components

being imported.

Further cost pressures will be

experienced as average annualised

wage increase for the construction

sector continues to exceed 5%

per annum. It appears that these

increases will be passed on by

increased prices, as they can no

longer be absorbed by the Industry.

The construction market in Sydney

will continue to be competitive,

however, due to the possibility of

increased work load, increases in

materials cost and unstable exchange

rates, it is likely the high level of

discounts applied to projects in the

period 2010–12 will be moderated

to some extent in the future. On

projects that are complex or contain

a high level of risk, risk premium

costs are appearing to be included in

contract pricing as contractors seek

to provide a return to shareholders.

Director Bob Richardson

+61 2 9922 2277

NSW VaLue oF BuILDING aPProVaLS(Six month % change, Oct 2012 - March 2013 & April 2013 - Sept 2013)

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0%

-20%

140%

100%

60%


NSW VaLue oF WorK DoNe (Half yearly % change, 1st half 2013)

-20%

5%

-5%

0%

-10%

-15%


PRIVATE PUBLIC



TOwNsVILLEThe construction market remains

competitive in Townsville and

North Queensland. While major

projects are being completed at the

Port, CBD, the Hospital/University

Precinct, Defence and suburban

retail, it is the pipeline that is of

concern.

The construction activity lost in these

completed projects is not being

replaced to the same level by new

projects. Contractors are somewhat

concerned by the diminishing

workload. Their margins remain

under pressure and this has seen a

change to the mix of contractors

who maintain offices in the city.

Positive sentiment and business

confidence still remain within the

industry. The newly completed

berths and cruise ship terminal at the

Port and office projects in the city

will bring their own relevant activity

levels and opportunities.

Looking to the future, the purchase

of the old rail yards by the Townsville

City Council was a positive move

for the city. By placing the council

in control of the site, significant

development opportunities, with

strategic links to the CBD and Reid

Park, will arise. Optimism is strong

about the Sports Stadium and

Entertainment Centre development

being proposed in Townsville and the

economic benefits the development

will bring to the region.

Residential building approvals

have seen increased activity in

both the Fitzroy (Rockhampton,

Gladstone and Central Highlands

areas) and the Mackay regions over

the past (2) two years with stable

approvals levels in both the Cairns

and Townville regions. The Fitzroy

region has seen a large spike in non-

residential approvals in 2012-13 (up

75% from 2011-12) and both Mackay

and Townsville have seen increased

approval levels over the past (3)

three years.

The non-residential approvals in

Cairns region have shown declines

over the past three (3) years. Any

reduction in the lag between building

approvals and construction activity

will be vital to the economic growth

in Northern Queensland.

The competitive market brings

opportunity to new projects as

conditions are favourable to

developers on the back of low

construction costs. The rates on the

majority of trades have remained at

similar levels for more than a year

and the competitive conditions will

remain for the short-term at least.

Director Chris Marais

+61 7 4771 5718

aPProVaL VaLue oF reSIDeNtIaL BuILDINGS ($m) 12 months to June 30

aPProVaL VaLue oF NoN-reSIDeNtIaL BuILDINGS ($m) 12 months to 30 June

1,000

600

800

400

200

0CAIRNS

2010/11 2011/12 2012/13

FITZROY MACKAY TOWNSVILLE

800

400

600

200

0CAIRNS

2010/11 2011/12 2012/13

FITZROY MACKAY TOWNSVILLE

Geyser, Auckland designed by Patterson Architects.


CONSTRUCTION MARKET INTELLIGENCENEw ZEALAND

The New Zealand economy is firmly

into an economic expansion. Global

dairy prices have increased to (3)

three year highs, the Canterbury

rebuild is gaining pace, and the

Auckland housing market is

becoming heated due to near-record

low mortgage rates and housing

supply shortages. After years of

restraint and cost-cutting, NZ firms

and household spending is rising.

Just about all of New Zealand’s main

soft commodities are set to show

some improvement at the farm-gate

in 2013-14. The stronger New Zealand

dollar is expected to be of assistance,

however, the major support factors

are supply and inventories remain

tight in many sectors.

Auckland led the cyclical recovery,

accompanied by more jobs, incomes

and spending. Growth in jobs has

stalled, but the region is on an

artificial high due to rapidly rising

house prices and debt. Surging

house prices in Auckland are a risk to

financial and economic stability.

Non-residential building is coming

out of hibernation, led by Canterbury.

The post-earthquake rebuild work is

beginning to accelerate. There is a

broader acceleration in other parts

of the country too. The recovery will

be gradual as risk appetite for new

investments is still low and there

is not much demand for additional

space yet. As the economy grows,

demand is returning and will boost

non-residential construction in 2014

and 2015. Canterbury is leading

the charge across all categories of

building. While the initial surge in

activity was outside Christchurch

city, activity is now picking up most

strongly in the centre. The rebuild

programme should continue to

accelerate over the next year.

Profits in the construction sector fell

during the recession, but are now

beginning to recover. Profitability

worsened as sales fell and profit

margins contracted. Businesses were

hard pressed to pass on increasing

costs in the face of weaker demand.

Many businesses were also loathe to

let staff go, who had been difficult

to secure in the lead up to the

recession. Construction firms became

more cautious about borrowing and

were also helped by lower interest

rates. Profitability is beginning to

recover, but margins remain low. As

the economy recovers, construction

firms’ profitability will improve on

higher turnover, fattening margins

and increased leverage.

NeW ZeaLaND NoN-reSIDeNtIaL CoNSeNtS VaLue(Half yearly % change, 1st half 2013)

-40%

RETAIL OFFICES INDUSTRIAL EDUCATION HEALTH TOTAL

10%

0%

-10%

-20%

-30%

NeW ZeaLaND VaLue oF BuILDING aCtIVIty(Half yearly % change, 1st half 2013)

0.0%

-2.0%

-8.0%RESIDENTIAL NON-RESIDENTIAL TOTAL

2.0%

8.0%

6.0%

4.0%

-4.0%

-6.0%

Geyser, Auckland designed by Patterson Architects.


Location inteLLigenceNew ZealaNd

AUCKLANDAuckland continues to slowly recover

from the recession. The main driver

to this recovery is the residential

housing market. The heat in the

market has forced the Reserve Bank

of New Zealand (RBNZ) to act with

high loan to value mortgages limited

to a 10% ceiling on new lending, as

opposed to the 30% ceiling currently

in place. If these measures do not

cool borrowing, then interest rates

will be raised by the RBNZ. Whilst

central government spending

is reducing, increased private

investment and a steady rise in

residential construction will underpin

the construction sector within

Auckland over the next few years.

Auckland residential building has not

kept pace with population growth

and this, coupled with historically

low interest rates and rapidly rising

house prices, has seen strong growth

in residential building demand. The

government has set a target of

39,000 new homes in Auckland over

the next (3) three years. Increased

residential activity will likely drain

resources particularly with the

Canterbury rebuild happening in

unison and this will inevitably lead to

upward pressure on costs.

Non-residential construction activity

remains subdued with stable but

low levels of work. There is promise

of some major projects within the

Auckland region, however, the

majority of these are still in the early

design phase and will not generate

work for some months. The collapse

of Mainzeal Construction and a major

mechanical services contractor is

evidence of the slow and drawn-

out recovery from the recession. It

has left a shortfall in the number of

large national building contractor’s

operating in New Zealand and

therefore reduced options for clients

with respect to tender lists and

competition on large projects.

The market and associated tender

pricing remains competitive. There

are signs however that prices are

on the rise. Given the lack of work

over the last few years and little

investment in labour and training

the resource pool is constrained.

The volume of work in Canterbury

is pulling both labour and materials,

such as fabricated structural steel,

from Auckland and other centres

around New Zealand. There is a real

risk that once non-residential building

activity increases in Auckland, we will

see demand outstripping supply with

labour shortages and a rapid rise in

construction costs.

Director Brian Dackers

+64 9 309 1074

auCKLaND reGIoN NoN-reSIDeNtIaL CoNSeNtS VaLue (Half yearly % change, 1st half 2013)

NorthLaND aND CeNtraL auCKLaND reGIoN (auCKLaND) VaLue oF BuILDING aCtIVIty(Half yearly % change, 1st half 2013)

-90%

-50%


30%

10%

70%

0.0%

-5.0%


-2.5%

5.0%

2.5%

-7.5%

-10.0%



CHRIsTCHURCHThe Christchurch rebuild has

continued to gain momentum in

recent months with a number of

large projects being confirmed and

Government acquisitions of key

sites well progressed. Christchurch’s

non-residential market conditions

currently remain relatively

competitive with main contractors

still looking to secure projects for the

next 12 months and beyond.

A number of medium sized

commercial projects (NZ$10-50

million) are already underway

with completion anticipated in

late 2014 / early 2015. A couple

of larger projects (NZ$50 million

+) are currently planned for

commencement.

In addition to these, a number of

larger government led projects

are gearing up to let contracts

by the end of the year with work

commencing in the first quarter

of 2014. These include Burwood

Hospital, Justice Precinct and

the CIGA Projects (Government

Accommodation).

The Christchurch City Council is

also preparing to let a contract for

the Town Hall works in the first

quarter of 2014. These projects will

be closely followed by other anchor

projects including the Metro Sports,

Bus Interchange and the Convention

Centre. Combined with large private

developments, we estimate that

there could be in excess of NZ$3

billion worth of non-residential

construction work over the next 4-5

years.

This level of activity is going to

create a number of challenges in

the local market especially around

material supply, labour resources

and subcontractor availability.

The current timeline for the major

anchor projects indicates a peak

period between the end of 2014 to

early 2016. Residential activity has

also continued to grow with the

Earthquake Commission (EQC),

the primary source of natural

disaster insurance to the owners of

residential properties, and insurer

repair programmes ongoing along

with continuing development of new

subdivisions to replace red zone

land. Housing New Zealand have also

committed to 700 new homes by

the end of 2015. With regard to Civil

works, SCIRT have completed over

NZ$200 million of work, a further

NZ$500 million underway and over

NZ$900 million at design stage.

Director Malcolm Timms

+ 64 3 354 6873

CaNterBury reGIoN (ChrIStChurCh) NoN-reSIDeNtIaL CoNSeNtS VaLue (Half yearly % change, 1st half 2013)

CaNterBury reGIoN (ChrIStChurCh) VaLue oF BuILDING aCtIVIty(Half yearly % change, 1st half 2013)

-50%

-25%


0%

25%

0.0%

4.0%


6.0%

10.0%

8.0%

2.0%

Regent Park Apartments, Wellington designed by Designgroup Stapleton Elliott.



wELLINgTONThe Wellington market continues

in a reasonably flat pattern and the

tender market continues to remain

very competitive. Margins across all

contracting sectors remains tight,

which is ensuring competitiveness

in securing new work. With the

shallow pool of current and expected

large projects, it is likely that this

contracting market will be with us

well into 2014.

Residential construction has stopped

declining, but still very low in volume.

There are signs of a recovery with

consent levels continuing to increase

slowly, but the recent government

push to increase home loan deposit

levels will have a detrimental effect

on this recovery. House valuations,

in the Central Region, have risen

slightly but prices have remained

relatively static, with good properties

achieving higher sale prices.

Commercial construction in the

Wellington region has increased

slightly from this time last year, but

still at very low volumes and mainly

smaller projects. With a couple of

Richter 6+ earthquakes centred in

Cook Strait recently, we are likely

to see the ongoing strengthening

of older properties continue and

increase in pace into 2014. The

number of large cranes on the

Wellington landscape is small, with

most on new multi-storey apartment

sites.

A few large civil projects, such

as Transmission Gully and Kapiti

Expressway, are currently gearing

up and the Basin Reserve / Buckle

Street tunnel is progressing well. This

will provide some positive outlook

for work in this sector of the market.

Given the lack of large commercial

projects in our region, it is likely that

price discounting will continue to get

stronger and keep cost escalation

under control for some time. Our

forecasting is indicating very limited

growth over the next two years,

with more sustained inputs in 2014-

15 on the back of the workload

appearing in Christchurch. We will

continue to see the strengthening of

older building stock as owners take

advantage of the tighter pricing,

however with the Christchurch

rebuild gaining considerable

momentum, it is hard to see a

sustained recovery in the Wellington

region for some time yet.

Director Tony Sutherland

+64 4 384 9198

0.0%

-5.0%


10.0%

5.0%

-10.0%

-15.0%

WeLLINGtoN reGIoN NoN-reSIDeNtIaL CoNSeNtS VaLue (Half yearly % change, 1st half 2013)

WeLLINGtoN VaLue oF BuILDING aCtIVIty(Half yearly % change, 1st half 2013)

-50%

-25%


25%

0%

50%


Tender Price Index – sydney Base

The tender price index graph shows the changing costs of works over time, relative to

Sydney’s base 100 at January 2000, and is based upon Rider Levett Bucknall models of

CBD/CBD fringe commercial office and residential multi-storey construction.

Tender Price Index – sydney Base

The tender price index graph shows the changing costs of works over time, relative to

Sydney’s base 100 at January 2000, and is based upon Rider Levett Bucknall models of

CBD/CBD fringe commercial office and residential multi-storey construction.

TENDER PRICE TRENDS FORAUsTRALIA/ NEw ZEALAND

AUCKLAND

CHRISTCHURCH

SYDNEY

WELLINGTON

120

100

80

140

160

INDEX (SYDNEY JAN 2000 = 100)

2006JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JANJUL

2007 2008 2009 2010 2011 2012 2013 2014YEAR

SEPT 2013

ADELAIDE

BRISBANE

CANBERRA

DARWIN

MELBOURNE

PERTH

SYDNEY

TOWNSVILLE

145

128

110

163

180

INDEX (SYDNEY JAN 2000 = 100)

2006JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JANJUL

2007 2008 2009 2010 2011 2012 2013 2014YEAR

SEPT 2013


TENDER PRICE TRENDS FOR AUsTRALIA/ NEw ZEALAND

TENDER PRICE RELATIVITy MATRIx sEPTEMBER 2013

auCKLaND100

ChrIStChurCh100

SyDNey100

WeLLINGtoN100

CHC 108 AUCK 93 AUCK 82 AUCK 93

SyD 122 SyD 113 CHC 89 CHC 100

WELL 108 WELL 100 WELL 88 SyD 113

Source: RLB

TENDER PRICE RELATIVITy MATRIx sEPTEMBER 2013

aDeLaIDe100

BrISBaNe100

CaNBerra100

DarWIN 100

meLBourNe100

Perth100

SyDNey100

toWNSVILLe100

BNE 86 ADE 116 ADE 96 ADE 90 ADE 98 ADE 94 ADE 94 ADE 105

CAN 104 CAN 121 BNE 83 BNE 77 BNE 85 BNE 81 BNE 81 BNE 91

DAR 111 DAR 129 DAR 107 CAN 93 CAN 102 CAN 97 CAN 98 CAN 110

MEL 102 MEL 118 MEL 98 MEL 91 DAR 109 DAR 104 DAR 105 DAR 117

PER 107 PER 124 PER 103 PER 96 PER 105 MEL 95 MEL 96 MEL 107

SyD 106 SyD 123 SyD 102 SyD 95 SyD 104 SyD 99 PER 101 PER 113

TVL 95 TVL 110 TVL 91 TVL 85 TVL 93 TVL 89 TVL 89 SyD 112

Source: RLB

MARKET DATA

rLB teNDer PrICe INDeX SerIeS (% ChaNGe) - SePtemBer 2013

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F) 2014 (F) reLatIVItIeS

CIty SePt 2013

aDeLaIDe 8.7 9.2 6.2 5.7 6.2 6.3 -2.8 2.9 -3.2 0.1 1.0 2.0 94

auCKLaND 7.0 10.0 5.0 4.0 1.0 2.0 1.0 0.0 0.0 0.0 1.0 4.6 82

BrISBaNe 8.7 12.4 11.3 8.8 6.3 -7.6 -5.8 -0.7 0.3 0.0 0.9 3.0 81

CaNBerra 5.7 7.2 6.7 6.2 4.7 3.1 1.1 3.4 1.4 -0.6 2.2 3.4 98

ChrIStChurCh 5.9 10.0 4.5 4.0 3.0 1.5 1.5 4.6 3.0 4.7 5.1 6.6 89

DarWIN 8.0 12.0 7.5 9.0 9.0 10.0 3.5 2.0 -11.4 2.0 3.0 4.0 105

meLBourNe 5.2 4.2 3.2 3.2 4.7 1.2 1.7 4.2 3.0 0.0 0.2 1.8 96

Perth 8.0 11.0 8.5 9.0 11.0 -2.1 -6.2 -1.6 1.3 -2.3 2.1 2.5 101

SyDNey 6.0 7.0 4.5 4.5 3.5 4.5 0.0 1.0 2.2 1.2 2.0 3.5 100

toWNSVILLe 11.9 16.4 11.4 9.4 6.4 -4.7 -4.7 0.4 0.5 1.0 2.0 3.5 89

WeLLINGtoN 5.0 9.0 4.8 4.0 3.0 2.0 1.0 1.5 1.0 1.5 2.0 4.1 88

(F) FORECAST


PEAK gROwTH ZONE

PEAK DECLINE ZONEPEAK ZONE

MID gROwTH ZONE

MID DECLINE ZONE

MID ZONE

TROUgH gROwTH ZONE

TROUgH DECLINE ZONETROUgH ZONE

CONSTRUCTION MARKET ACTIVITy CyCLE MODEL

LoCatIoN houSeS aPartmeNtS oFFICeS INDuStrIaL retaIL hoteL CIVIL

aDeLaIDe

auCKLaND

BrISBaNe

CaNBerra

ChrIStChurCh

DarWIN

meLBourNe

Perth

SyDNey

toWNSVILLe N/A

WeLLINGtoN


The chart above shows the aggregate numbers of responses from Rider Levett Bucknall Oceania offices, in each of the

three categories, Trough, Mid and Peak Zones

The chart above shows the aggregate numbers of responses from

Rider Levett Bucknall offices, in each of the three categories, Trough, Mid

and Peak Zones, shown as percentages for each of the construction sectors.

MARKET SECTOR MOVEMENT OCEANIA

By AggREgATE NUMBER Of REsPONsEsMARKET sECTOR MOVEMENT - ALL REgIONs

By AggREgATE NUMBER Of TOTAL UPs AND DOwNsMARKET sECTOR MOVEMENT - ALL REgIONs

By TyPE, % AND NUMBER Of REsPONsEs MARKET sECTOR MOVEMENT - ALL REgIONs

TROUGH ZONE

0%

10%

50%

80%

100%

HOUSES APARTMENTS OFFICES INDUSTRIAL RETAIL HOTEL CIVIL

20%

30%

60%

40%

90%

70%

PEAK ZONEMID ZONE

1

3

7

2

4

5

2

3

6

4

7

1

2

87

2

1

5

4

2

0

35

45

5

10

30

20

25

15

40

NU

MB

ER

OF

IN

ST

AN

CE

S

TROUGH ZONE PEAK ZONEMID ZONE

Trough Growth Zone 42

Mid Growth Zone 22

Peak Growth Zone 12

0

80

100

20

10

30

50

70

90

60

40

NU

MB

ER

OF

IN

ST

AN

CE

S

TROUGH ZONE PEAK ZONEMID ZONE

Green Dn: 5

Red Up: 11

Red Dn: 1

Blue Up: 30

Blue Dn: 12Green Up: 17

Westfield Sydney Retail, Sydney designed by Westfield Design & Construction with John Wardle Architects won

Best Mixed Use Development and Best Shopping Centre Development at the 2013 Property Council of Australia /

Rider Levett Bucknall Innovation & Excellence Awards.


CAPEx FORECAST STUDyExIsTINg AUsTRALIAN AssETs

10-yEAR CAPEx fORECAsT By MAjOR AssET TyPEs

The 10-year graph, depicted below, shows the average forecasted capital expenditure (CAPEX) as a proportion of

the total Replacement Cost (RC) of the property asset as at October 2013. The current percentage range of forecast

CAPEX is 1.0% to 6.0% of RC. This is based on RLB experience with existing Australian assets by sector. The graph

reflected below reflects a Year 1 start point of a ‘Very Good’ condition building asset and/or an asset age of less than

10 year, and the stated cost percentage excludes periodic upgrades and refurbishments.

10-yEAR CAPEx fORECAsT (%) ALLOCATIONs fOR COMMERCIAL BUILDINgs

The following 10-year CAPEX charts show the average percentage expenditure allocations for a sample of

existing Australian commercial buildings excluding sustainability initiatives and market re-positioning upgrades.

The allocations for individual assets will vary based on the PCA Grade, age, condition and extent of backlog

maintenance, management strategy and periodic refurbishments.

Source: RLB – NSW’s facilities cost database

OffICEs: yEAR 1 CAPEx OffICEs: yEARs 2-5 CAPEx OffICEs: yEARs 6-10 CAPEx

Building FabricEnvironmental

CodeCompliance

Structure Facade

BuildingServices

Building Services

Code Compliance

Environmental

StructureFacade

BuildingFabric

Environmental

Building Fabric

StructureFacade

Code Compliance

BuildingServices

Building Fabric 39%

Structure Facade 8%

Building Services 43%

Code Compliance 8%

Environmental 2%

TOTAL 100%

Building Fabric 61%

Structure Facade 3%


Code Compliance 7%

Environmental 1%

TOTAL 100%

Building Fabric 43%

Structure Facade 7%


Code Compliance 17%

Environmental 0%

TOTAL 100%

MODERATE

LOW (1.0%)

$0

HIGH (6.0%)

HOTEL

OFFICE

RETAIL

INDUSTRIAL

YEAR 1 YEAR 2-5 YEAR 6-10

Instant cost data on the spot

Global Construction and Property Advisorsrlbintelligence.com

Rider Levett Bucknall Desktop appThe fastest way to get the latest construction cost information right at your fingertips

RLB Intelligence Smartphone appAvailable on iPhone, Android, Windows Phone7 and Blackberry Operating Systems

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Grand Cayman

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Las Vegas, NV

Los Angeles, CA

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New York, NY

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Portland, OR

San Francisco, CA

Seattle, WA

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CHINABeijing

Chengdu

Chongqing

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Haikou

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Shenyang

Shenzhen

Tianjin

Wuhan

Wuxi

Xian

Zhuhai

INDONEsIAJakarta

MALAysIAKuala Lumpur

MyANMARyangon

PHILIPPINEsCebu

Davao

Manila

sINgAPORESingapore

sOUTH KOREASeoul

THAILANDBangkok

VIETNAMHo Chi Minh City

MIDDLE EAsTAbu Dhabi

Doha

Dubai

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AfRICARLB|Africa Alliance

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UKBirchwood/Warrington

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EUROPERLB|EuroAlliance

Austria

Belgium

Bulgaria

Czech Republic

Estonia

France

Germany

Greece

Hungary

Ireland

Italy

Kazakhstan

Latvia

Luxembourg

Malta

Netherlands

Norway

Poland

Portugal

Romania

Russia

Slovakia

Slovenia

Spain

Sweden

Switzerland

Turkey

Ukraine

AUsTRALIAAdelaide

Brisbane

Cairns

Canberra

Darwin

Gold Coast

Melbourne

Newcastle

Perth

Sunshine Coast

Sydney

Townsville

NEw ZEALANDAuckland

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Otago

Palmerston North

Tauranga

Wellington

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Documents

OCEANIA REPORT MARKET INTELLIGENCE - FMHOUSE€¦ · innovations to deliver full property solutions for clients across a number of sectors. Services provided include Cost Consultancy,