Construction Costs in Australia Forecast to Rise in Late 2021

Construction Costs in Australia Forecast to Rise in 2021

According to Arcadis’ International Construction Costs (ICC) report, Sydney is the 29th most expensive city when it comes to construction costs.

Perth was the biggest mover among Australian cities in the study, rising five places to 45th. Brisbane fell four places to 42nd, while Melbourne came in at 41st in the global rankings. Apart from Adelaide, four of Australia’s cities fell into the top half of the global rankings.

The ICC report, which ranks the relative cost of construction of 100 cities worldwide across 20 building types, found that construction markets globally were relatively stable as they emerged from the pandemic, and are poised to strengthen over the next year as Governments turned to investment in infrastructure to stimulate economies and employment.

Movements in ICC rankings this year are attributed to the delay and disruption of individual projects in many countries and the decline in the value of the US dollar during 2020.

In Australia, Arcadis forecasts that competitive conditions could see local construction costs fall by as much as 1 per cent in the early part of the year before rebounding strongly in late 2021 as new projects begin and the sector returns to pre-pandemic levels.

Arcadis National Director for Cost & Commercial, Matthew Mackey, said the construction sector globally has proven resilient during the pandemic with pricing mainly holding steady.

“We avoided the steep recession in construction that many feared and now the industries are set to benefit as Governments look to kickstart their economies. Construction is still seen as a lever for economic stimulus and jobs growth,” Mr Mackey said.

“In Australia, construction demand coming out of COVID is being led by the public sector and we see competition for work putting downward pressure on tendered costs in the first half of the year. However, we expect to see inflationary pressures emerge later in the year as the market tightens and material shortages and labour costs start to bite,” he said.

“Over the medium term and beyond costs will rise steadily, driven by labour shortages caused by border closures, expanded investment in social infrastructure, increased material costs and strengthening construction demand from the private sector.”

In its latest quarterly Australian Construction Market View, Arcadis is forecasting construction tender prices in Sydney, Australia’s most expensive city in which to build, to increase by 0.5 per cent in 2021 and then 2.5 per cent each year thereafter until 2025.

According to the ICC report, a key driver of global construction costs in coming years will be the commitments being made by Governments and private companies on net-zero carbon, which are flowing through to more stringent requirements for building design and specification.

“If anything, the pandemic has sharpened attention on climate change and pressure is mounting on the construction industry. Sustainability presents commercial challenges, and some clients are further in their net-zero journey than others,” Mr Mackey said.

“The industry needs to strike a balance between buildings that are net-zero and future-proof, and buildings that are viable and investible. Contractors’ margins today are in many cases unsustainably low and projects are too often driven to the lowest cost. If the right types of projects are to be taken forward, we need an industry conversation around value, so that buildings can deliver on wider expectations around sustainability and quality while also stacking up financially for all participants.”

Sources: buildaustralia.com.au and arcadis.com