The NZ Institute of Economic Research’s forecasts for cost management & quantity surveying firm Rider Levett Bucknall indicate construction cost inflation peaking at just below 5% in the next year before moderating to 4% by late 2019.
Rider Levett Bucknall Wellington director Grant Watkins said on Wednesday: “Beyond that, we expect annual construction cost inflation to ease to around 3.5% in late 2020, as capacity pressures in the construction sector ease.”
The research showed construction sector firms continuing to report acute labour shortages, especially in skilled labour. Mr Watkins said: “Migrants have helped to alleviate this, with an increase in technicians & trades’ workers moving to New Zealand on a work visa. Rider Levett Bucknall expects this to continue, given the amount of construction activity required over the coming years.”
According to the Rider Levett Bucknall Forecast 87 report – NZ Trends in Property & Construction, the construction pipeline should be solid for the next few years as house-building activity lifts to meet increased demand from the surge in population in recent years.
Other points it noted:
- Demand for social buildings has now overtaken hotel developments as the top driver of growth in non-residential construction demand over the last year
Despite net migration continuing to slow, population growth (while moderating) & tourism are expected to underpin many longer-term trends. These include office growth for the higher number of white collar workers, new accommodation buildings for the high number of international visitors, and strong domestic tourism & earthquake strengthening activity will also contribute to non-residential construction demand
- Auckland continued to lead growth in non-residential construction demand over the last year. Demand strengthened across a broad range of sectors, with particularly large increases in demand for hotels & social buildings
- Business confidence has been particularly soft in Wellington in the wake of the new government taking office, and Mr Watkins said this might further dampen demand for investment in new buildings over the coming year. The recent announcement by Fletcher Building Ltd that it will stop bidding for ‘vertical construction’ work also added uncertainty.
Attribution: Company release.