Property Australia

Construction costs in Australia set to rise

Karen Jamal Karen Jamal May 18, 2021

Rising labour costs and material shortages will put pressure on building costs this year, says Arcadis as it releases a closely-watched comparison of construction costs in 100 global cities.

 

  Three key takeaways:

  • Arcadis’ International Construction Costs report ranks six Australian cities within its global list of 100
  • Sydney was rated 29th on the list – up from 30th last year – making it easily the most expensive city in Australia for construction in 2021
  • Perth was the biggest mover among Australian cities, rising five places to 45th. Brisbane fell four places to 42nd, while Melbourne remained level at 41st in the global rankings.

 

The ICC report ranks the relative cost of construction of 100 cities worldwide across 20 building types. The 10 most expensive cities are Geneva, London, Copenhagen, Oslo, Zurich, New York City, San Francisco, Hong Kong, Dublin, and Macau.

Sydney, while Australia’s most expensive city for construction, was cheaper than many comparable cities including Seattle, Manchester, Auckland, Christchurch, Stockholm and Dublin.

Arcadis found global construction markets remain “relatively stable” as they emerge from the pandemic and are poised to grow as governments turn to investment in infrastructure. The Australian Government, for instance, announced an additional $15.2 billion in infrastructure spending in last week’s federal budget.

Arcadis forecasts that competitive conditions could see local construction costs fall by as much as one per cent in the early part of the year.

Matthew Mackey, Arcadis national director for cost and commercial, says competition for work is “putting downward pressure on tendered costs” but inflationary pressures could emerge later in the year “as the market tightens, and as material shortages and labour costs start to bite”.

Mackey says costs will rise steadily over the medium term, driven by labour shortages caused by border closures, expanded investment in social infrastructure, increased material costs and greater construction demand from the private sector.

Arcadis is forecasting construction tender prices in Sydney to increase by 0.5 per cent in 2021 and then 2.5 per cent each year thereafter until 2025. Melbourne is tipped to show the highest increase in 2021, with tender prices forecast to have increased by 1.5 per cent by year end.

A key driver of global construction costs in coming years will be net zero carbon commitments, which are flowing through to more stringent requirements for building design and specification. Buildings are responsible for nearly 40 per cent of the world’s greenhouse gas emissions.

“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,” Mackey says.

Arcadis recommends measures including industrialised construction to minimise waste, substitution of carbon-intensive materials such as cement, and low-carbon electrical and hydrogen-powered plants in construction.

Tags: RESEARCH