Queensland Construction Cost Forecast - For Both Ends Of Town

By Michael IveyFor the last 18 months we have been living on borrowed time and enjoying a low cost-growth environment despite indicators telling us it should be otherwise. Going back 12 months we forecast 3-5% growth across 2015 with a caveat that this could change dramatically when the Gold Coast market takes off. At that time the Gold Coast was operating at 20% of its peak capacity and was just starting to see an upswing in approvals. This trend has grown and with a number of $1B+ projects being talked about, it looks set to continue.

The long line of utes clogging the M1 into Brisbane from 5am each morning has been keeping the heat out the Brisbane labour market, however this is about to change and that impact will be hard felt. For now, it is mainly the Gold Coast tradies who are swapping the long commute for a chance to catch a wave before work and happy to do so for similar money to what they would earn in Brisbane. However we are starting to hear reports of tradies being offered small premiums to work at the beach. If this takes hold we will end up in a pre-GFC situation with both Brisbane and GC markets operating at capacity and competing for labour.

Tenders are getting less competitive and first choice builders are getting picky about the projects they compete for. This has been giving other contractors an opportunity to pick up work but they are doing so at higher preliminaries and more sustainable margins.

Broadly, the major banks are responding to APRA with tighter lending guidelines and reduced appetite for risk on new projects. However they are still lending if you know who to ask and have the right product. Talk to us if you need any advice. In the meantime, any slack is being taken up by smaller institutions and alternative funders – brokers are making their mark in the smaller deals.

Our QLD cost forecast is two-tiered. At the larger end of town, which are exposed to EBA increases, and reduced competition for a smaller number of large contractors - increases upwards of 6% through to the end of 2016. For the rest of the market you should forecast 1% per quarter for a total of 4% throughout 2016.

Michael Ivey is a Brisbane partner with Mitchell Brandtman - Quantity Surveying and Construction Risk Management Services.