Property Australia

Construction costs on the rise


Construction costs in Sydney grew by 3.5 per cent last year, and by four per cent in Melbourne, leading to skills shortages and supply-chain bottlenecks, finds Turner & Townsend’s latest construction market report.

The survey of 64 global markets found San Francisco is the most expensive place to undertake construction activities, followed by New York, London, Zurich and Hong Kong. Bangalore was the least expensive, behind Istanbul, Guangzhou, Nairobi and Beijing.

Global construction costs are set to rise 4.1 per cent in 2019, following a 4.2 per cent increase in 2018 and 4.9 per cent in 2017.

Sydney fell four places to number 13 on Turner & Townsend’s table with Melbourne ranked at 31 (falling from 19), Brisbane at 34 (down from 21) and Perth at 38, dramatically dropping from 23 in last year’s survey.

Compiling data from Turner & Townsend teams, the International Construction Market Survey provides an in-depth analysis of construction costs – and what’s driving them – around the world.

It measures input costs for materials and labour to calculate the average cost per square metre across 27 construction types, including high-rise apartments, city centre offices, hospitals, schools, warehouses and shopping malls.

Turner & Townsend expects Sydney’s 3.5 per cent increase in construction costs in 2018 will be repeated in 2019. Melbourne’s four per cent rise in 2018 is predicted to grow to five per cent this year.

Perth rose by one per cent and is expected to rise again by 1.5 per cent in 2019, while Brisbane construction costs increased by two per cent, with expectations of a 2.5 per cent rise in 2019.

“Despite weakening housing markets in Australia, global trade barriers and tightening financial conditions both locally and globally creating headwinds, the local construction sector still remains strong,” says Turner & Townsend’s economist Gary Emmett.

“The federal government’s $100 billion investment in infrastructure over the next decade, in addition to the state government investments, will help cushion the economy and keep jobs growth strong. Public sector investment in road and rail is especially buoyant and is helping offset the weakening housing sector.”

But Emmett does emphasise that activity in Sydney and Melbourne has “increased costs and led to skills shortages and supply-chain bottlenecks, putting stress on schedules”.

“The prospects in 2019 are looking promising with commercial, health, defence, retail, hotel and natural resources construction rising in parallel with massive infrastructure projects.

“However, sliding house prices in Sydney and Melbourne could curb discretionary spending, raising downside risks later in 2019.”