Wellington outlook brightest in Rider Levett’s survey

Published 30 January 2009

Rider Levett Bucknall has forecast extremely subdued levels of growth for both 2009 & 2010 in its latest international construction cost commentary.


Rider Levett Bucknall Research & Development uses global cost data to derive indexed measures of relative costs of construction within & between markets for its bi-annual commentary.


The international group’s Auckland-based chairman, Brian Dackers, said: “The advent of the global credit squeeze has resulted in a drastic slowdown in global growth, with the effects being felt by all economies worldwide.


“For construction, the time-consuming process of freeing-up of financial markets & credit availability may be required before the re-establishment of confidence in residential, commercial & retail sectors, which only then will result in more projects coming to market. However, in most locations, what we are seeing is that the difficult market conditions are providing an excellent tendering environment for clients of the industry who do have liquidity of funding.”


The report charts tender price index movement for leading cities around the world between July 2008-January 2009 and found two-thirds of them had zero or negative tender index movement. The biggest rises in tender price growth were Darwin (4.1%), Adelaide (2.8%) & Perth (2.3%). Wellington recorded zero growth and Auckland contracted by 1%. Dubai’s index rose by only 1.8%.


Those figures are well down from those only 6 months earlier – Singapore 18.7%, Dubai 15.8%, Hong Kong 14.6% & Perth 8.3%.


Mr Dackers said: “Our analyses clearly show the change occurring in the third quarter, although the signs had been there earlier in the year in various locations. As a result, construction industries across the globe face more challenging times ahead as funding becomes less readily available & more costly. Though interest rates have fallen, banks’ reluctance to fund risk is now a major factor in getting projects off the ground, even if demand exists.”


The report indicates that, in 2009, New York, London & Honolulu are the most costly cities to build in. In New Zealand, Wellington is the most costly city, followed by Auckland, then Christchurch.


New York is 51% more costly than Wellington, 57% more than Auckland.


Auckland flat, except for infrastructure


Mr Dackers said that despite interest-rate cuts since July, the Auckland residential market remained flat. Meanwhile, the other building market sectors had become similarly affected, with demand & access to development finance rapidly declining.


“Only the infrastructure sector has been unaffected by the downturn, with central Government-funded projects continuing through the maelstrom. Local government spending, conversely, is set to be slashed.


“Despite weak demand, building materials costs for contractors are rising, due to general cost increases coupled with the falling $NZ, which is offsetting recent falls in international commodity prices. Highly competitive market conditions, however, are set to remain, with contractors targeting margins & overheads to secure a limited supply of work.”


Christchurch conditions mirror Auckland’s


Mr Dackers said general economic conditions in Christchurch mirrored those in Auckland, although Christchurch had several major projects either under construction, recently started (AMI Stadium & new Christchurch civic building) or due to start soon (Christchurch Airport redevelopment).


“Together, they have a combined value in excess of $300 million, which will keep the industry relatively busy well into and possibly through 2009. However, we are noting, in recent tenders, greatly increased competition & associated price-cutting in terms of margins.


“These conditions are likely to persist in the next period as tendering opportunities continue to be adversely affected by the lack of confidence in the market and problems of financing. This is already apparent in the small to mid-size project end of the market.”


Wellington outlook brighter


“Wellington is also feeling the effects of the credit crunch, but is coming off a 20-year high in construction volume. The excess of labour supply thus created is giving rise to competition & price-cutting in the context of fewer new tendering opportunities.


“However, Wellington has at least 6 major projects commenced or about to commence, with a total value of about $200 million. Further, 2 major Wellington City Council projects are seeking consultant submissions, with confirmation that they will proceed, and there are also the new sports stadium & extensions to the City Art Gallery. These projects plus others in mid-construction will keep the workforce busy through 2009 and into 2010.”


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Attribution: Company release story written by Bob Dey for the Bob Dey Property Report.

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