Construction industry showing "significant improvement" in sentiment and activity since federal election

Tender prices and construction industry confidence are on the rise across the eastern seaboard and in Perth, according to national quantity surveying firm WT Partnership. And, it says, most markets are “showing significant improvement in sentiment and activity over the last three months.’’ 

The firm’s quarterly market report says the change in federal government in September appears to have renewed optimism in the construction sector in most states. “Although both federal and state government spending remains tight, private investment in both building and infrastructure looks set to take up capacity in these sectors,” it says. 

WT Partnership expects tendering nationally to remain tight for the next six-12 months as contractors look to fill their order books into 2014. “The construction market appears to have turned with consultants and contractors expecting improved activity in 2014.”

In most states, WT Partnership offices are finding that large residential projects, especially at the lower end in investment grade and first homebuyer products, are boosting the overall market. This renewed activity is not likely to impact upon residential construction costs overall, however, it is expected that in some trades, labour costs will increase as skill shortages kick in.

Subject to the strength or decline in value of the dollar, WT Partnership is expecting to see national average tender price escalation in 2014 trending below 2.0% with an increase to 2.5% for 2015 and 2016.  Individual state predictions vary widely.  

Highlights from the report include:

New South Wales

“Across NSW, the building industry shows signs of improvement, with housing construction increasing for the first time in three years. Sydney CBD rental markets and residential sales volumes have continued to increase in the quarter,” said Nick Deeks, WT Partnership’s national managing director. He says the planned $30 billion of infrastructure to be completed over the next seven years, supported by the state and federal governments, is buoying sentiment and supporting costs.  Tendering remains competitive.  

“We are projecting average cost escalation of 1.25% for 2013, 3.0% for 2014 and 4.0% for 2015 and 2016.”

Queensland

“Tender prices are on the move in south-east Queensland with the recent uplift in residential, commercial and retail construction activity. It is likely that the extremely competitive pricing by major builders over recent years will ease and we will see escalation rising from the current 2.0% to 4%-plus per annum in 2015-16,” said Jason Thornley, Queensland director, WT Partnership. 

Victoria

Confidence in the Victorian construction sector continues to improve as overseas investment in major residential projects continues to boost the market. “The state government’s commitment to a number of major infrastructure projects is improving confidence as engineers and contractors position themselves for demand,” said James Ford, Victorian director, WT Partnership.   

Adelaide

“In the past 24 months Adelaide has had one of the deepest and most rapid falls in construction pricing throughout the country. During last year, tender return prices fell by as much as 20%,” writes Sam Paddick, South Australia director, WT Partnership.  There are some signs that developers are starting to respond to these low levels of pricing, with retail the first to move forward with projects, he said. 

Western Australia

“The continued slowdown in the resources sector in Western Australia, coupled with the recent credit rating downgrade of the state’s finances by Standard and Poor’s, has eroded market confidence,” writes Scott Parrott, WA director, WT Partnership.  ‘’Despite this weakness we still expect strong activity in various sectors over the coming year. Retail investment appears to have gained momentum in WA, with a considerable amount of work being priced or in the pipeline.’’ 

Australian Capital Territory

“In the ACT, following the recent change of government, there is concern over economic conditions and confidence remains suppressed,” writes James Osenton, ACT director, WT Partnership. The contractor environment continues to be lacklustre. 

Tasmania

The Tasmanian economy continues to struggle in the face of dramatic cuts to GST revenue, high unemployment and low population growth, however, recent state and federal government funding announcements have buoyed sentiment in the construction sector.  Tender margins are still extremely tight.

staylor@propertyobserver.com.au

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