With cranes littered across the skyline, there has been plenty of discussion about Brisbane’s current apartment supply pipeline.
In the wake of this building boom, what is the outlook for construction prices?There is a prevailing view among many developers that construction prices will likely fall in the next 12 months, but is this really the case?According to Darryl Bird, Partner at quantity surveying firm Mitchell Brandtman, it looks unlikely that developers will be given a cost reprieve in the near future.
“We don’t see any significant drop off in material and labour costs in the near future,” he said.
“When you draw a trend line across the MB Building Price Index (BPI) you can see that we are now largely at a position of long term trend growth, that is, where we would be if we had of experienced 3-5% average growth over the last 5 years.”
Research indicates that the BPI has already stabilised since the peak of the market and the main pressure that will drive further falls is a significant drop in labour costs which, according to Bird, is unlikely to materialise.
So in the face of modest construction price escalation, how do developers adapt?
“The real question people should be asking is ‘will the market continue to push developers to deliver higher quality end product?” asks Bird.
“The developers that are kicking goals at the moment are providing differentiated product – and this has been the driver for higher ‘per unit’ costs throughout the East Coast. Projects that are selling out are those that are value adding and providing increased utility for the end-user. Developers with good cost control are spending ‘smarter’ rather than spending more.
In summary according to Mitchell Brandtman, the four main points you need to know in relation to construction costs in Brisbane are;
We aren’t expecting costs to reduce.
Changes in product/inclusions have had the biggest impact on per unit costs over the last 18 months.
There will be some movement on costs at the Head Contractor and Sub-contractor level but we are expecting costs to stabilise to healthy levels and not spike or de-escalate at an unusual rate.
Trend has been 4% per annum during 2016; not expecting to see that type of growth and forecasting 1% over the next 6 months.
Darryl Bird
, Partner & Financiers' Quantity Surveyor at Mitchell Brandtman For further insight into construction prices ensure you've secured tickets to The Urban Developer's upcoming national event series; Navigating The Funding Maze: What Developers Can Expect From Bank And Non-Bank Lenders In 2017.
