Sydney leads Australia in construction costs, climbs to no. 9 globally: survey

Construction costs in Australia remain stable compared with the rest of the world with Sydney the most expensive place in Australia to build, according to a new survey.

The International Construction Market Survey 2017 analyses input costs – such as labour and materials and charts the average construction cost per sqm for both commercial and residential projects.

Sydney was at number nine, with New York taking the number one spot for the most expensive place to undertake construction in 43 markets covered by real estate consultancy Turner & Townsend’s International Construction Market Survey 2017. Sydney was at number 14 in the last survey.

The survey ranked Melbourne at 20, Perth at 21, and Brisbane at 22.

Turner & Townsend Australia & New Zealand managing director Anooj Oodit said the report showed globally construction costs are reasonably well contained with Australia showing little variation, apart from the Perth market which is a cold market with falling costs (moving from 21st to 18th spot). 

“The improving commodity prices are set to help resources countries like Australia benefit from higher commodity export royalties. This in turn will provide confidence to invest especially in further infrastructure,” said Oodit.

“Low interest rates have encouraged strong growth in domestic apartment construction markets in several regions worldwide, especially Australia. Looking forward, Brexit and the election of President Trump may add some uncertainty to some construction markets, however, the Australian government is committed to its $75 billion infrastructure spend over the next 10 years.”

The recent announcement by the federal government to build Badgerys Creek airport and the Inland Rail project would be a boost to the construction market in Australia, he added.

The report emphasises the need for further improvements in productivity. Twenty-three of the 43 regions, including Australia, indicated that they were experiencing skill shortages as the workforces age and fewer school leavers enter the construction labour force.

The surveys over the past three years (2015 – 2017) highlight there has been a massive upswing in residential apartment construction on the East Coast which is now coming to an end, except in Sydney. This period has seen construction costs rise a little above general inflation. Construction costs on average are up 5.5 per cent over three years, whereas price inflation is up only 3.5 per cent over three years.

Sydney residential construction spend has grown by 54 per cent since the 2015 international report. Over the same period construction costs are showing an average 9 per cent increase, while non-residential construction (hotels, offices and retail) activity increased by only 6 per cent.

The Melbourne residential construction market grew by 34 per cent during the same period, showing an average cost increase of 4 per cent, while the non-residential market activity fell by 1 per cent.

Brisbane’s residential construction market grew by 50 per cent, showing an average cost increase of 8 per cent. The non-residential market activity fell by 2 per cent.

Perth’s residential construction market fell by 13 per cent, construction costs increased by 1 per cent and non-residential construction activity fell by 18 per cent.

“The question is what comes next after the apartment boom? Some of the shortfall will be met by major infrastructure projects including Badgerys Creek, Cross River Rail, Inland Rail and Snowy Mountain Hydro phase 2. The time is now ripe to capitalise on the apartment boom slowdown and use the resources (cash and labour) to boost Australia’s infrastructure projects and keep the economy strong.”

“Global construction costs are set to rise by 3.5 per cent in 2017, reflecting steady growth in the global economy but also increasing labour shortages and low productivity within several key markets. The main exceptions to this rule lie in commodity reliant markets where falling prices for raw materials have contributed to a cooling in construction cost inflation,” Oodit said.

Major investment is needed to address the growing construction skills shortage which is becoming acute in many international markets, increasing labour and project costs, said the report.

“Against a backdrop of rising cost inflation and labour shortages, policymakers, contractors and clients in all markets need to tackle low productivity, embracing innovative technologies, new methods of construction, as well as using data and better programme management to boost input,” Oodit concluded.

Turner & Townsend has 97 offices in 41 countries and over 4,200 employees.