Happy days ahead for the construction industry

by Michael Bleby

It’s happy times for construction companies. Growing approvals in both residential and non-residential construction show the industry is over the worst after many years of sluggish activity. Official figures show a second monthly increase of non-residential approvals-after four of contraction – in October coincided with an eighth straight month of growth on the trend measure of residential approvals. ‘We have reached a turning point,” says BIS Shrapnel associate director Kim Hawtrey. “[Next year] will be a period of the sun corning out and in 2015 we’ll see the industry return much closer to historical norms and we’ll see tender prices tending to go back towards CPl.” The pace will be modes~ however. Tender prices – the amount construction companies quote when bidding for jobs-are likely to rise less than 2 per cent on average next year.
Even though demand for residential work is growing, competition remains strong because construction companies that were previously building on mining sites are seeking work elsewhere as the resource boom slows. This is keeping prices down. The pick-up will gain pace in 2015. Quantity surveyor WT Partnership expects a national tender price riseof2.5 per cent in 2015 and 2016, while property consultancy Rider Levett Bucknall predicts a 3 per cent gain in 2015. A sense of optimism after the September federal election bas boosted private investment, boosted by lower borrowing costs, and this is spurring the construction of lower-priced blocks of units and first-home developments, says the WT Partnership. While activity levels vary between states, total construction work across Australia this year is higher than the decade average, according to RLB. “Overall, the renewed optimism in the market is yet to be realised and fierce tender pricing is expected to continue for tier 1 contractors {the largest contractors, whose ranks include Leighton and Lend Lease] until they begin to fill their order books for the coming year,” a WT Partnership report says. “Pressure remains in the [mid-sized] tier 2 sector to cut costs and absorb increases in labour and materials and we expect to see tight tendering conditions until some of the major contracts come into the market in the first quarter of2014.” But the emerging emphasis on addressing Australia’s infrastructure deficit also gives companies a level of confidence. NSW and Queensland will show the fastest growth in tender prices. Both states should see tender price s rise by 4 per cent of more, according to WT. Victoria is less reliant on the resources sectors to drive its economy so the construction industry does not experience the same peaks and troughs in activity as its counterparts in other states. After near-zero growth this year, tender prices in Victoria are likely to rise 1.8 percent next year and 3 per cent in 2015, according to RLB predictions. It also estimates that in the six months to June. Overall construction work in Northern Territory was 72 per cent above its decade average, however, in Tasmania, it was 9.7 percent below its I().year average. Construction activity in Western Australia was up by 65 percent compared with the corresponding period.