CostWeb News

Australian Market intelligence Report 1Q 2017

Monday, 22 May 2017


 Our latest Market Intelligence Report  containing  cost and market information from local contractors is out. Construction costs in Australia are increasing as high volumes of residential apartment construction and a resurgent infrastructure program drives the demand for skilled trades and materials. Construction costs are still relatively well contained in all regions but Sydney is beginning to experience isolated cost spikes in subcontractor trades. Gradually construction in Sydney is expected to increase adding further pressure to costs later this decade. Outside Sydney work levels are well contained and tender competition is keeping costs moderate.

Economic Outlook

New South Wales and Victoria continue to power ahead with solid economic growth and high levels of public sector infrastructure investment in roads and rail. Meanwhile the resources states of Queensland, West Australia, South Australia and Northern Territory are slowly emerging from their post resources hangover.

  • Overall growth is modest at 1.8% and unemployment is nudging higher to 5.7%
  • Private business investment growth is sluggish with many larger firms still in cost cutting mode.
  • Inflation at only 1.7%. No evidence of a wage breakout because wage growth is in line with inflation, and the proportion of part time and casual jobs is growing, which is serving to limit household spending and demand.
  • Some recovery in iron ore and coal prices in 2016 is giving government revenues a boost, but the  government's inability to get the budget to balance has made credit ratings agencies nervous with the result than banks are pricing in an expected increase in borrowing costs

Construction market and trends

Construction markets have been boosted by strong residential apartment building programs in Sydney Melbourne and Brisbane. Much of it is investor led based on low interest rates and strong demand from Chinese investors in the capital cities. Recent announcements of controls of outbound Chinese investment may affect these.

  • Brisbane and to a lesser extent Melbourne looks as if they are becoming oversupplied in this sector, but in Sydney market solid population growth and a backlog of demand should see further growth despite very high prices.
  • Commercial construction is not so buoyant although Sydney's booming infrastructure program, growth in the financial and tourism sectors are driving the construction of new office towers.
  • The hotel sector is looking very bright with growing inbound tourists and significant investments including Wanda's luxurious Jewel resort on the Gold Coast and the massive riverfront Queens Wharf casino and hotel complex in Brisbane getting underway.
  • Perth markets are a little flat with resources activity in a slump. State investments in infrastructure and expansion at the airport will keep the sector afloat.

 Future Outlook

The outlook is generally positive notwithstanding the risk of higher borrowing costs and the high level of private household debt tied up in real estate.

Investment in residential construction investment is entering a cyclical slowdown but retail, hotels and infrastructure will go some way to closing the gap. 

<< Return to News