Capacity constraints limit growth despite strong construction demand
10 May 2018
Rider Levett Bucknall:
Released today, the Rider Levett Bucknall (RLB)
Forecast 87 report – New Zealand Trends in Property and Construction –
confirms that despite construction remaining strong, capacity
constraints limit rate of growth.
Prepared by the
New Zealand Institute of Economic Research (Inc.) (NZIER)
exclusively for Rider Levett Bucknall (RLB), Forecast 87 highlights that
the construction pipeline should be solid for the next few years, as
house-building activity lifts to meet increased demand from the surge in
population in recent years.
Demand for social buildings overtakes hotels
Grant Watkins, Director of RLB in
Wellington said, ‘Demand for social buildings has now overtaken hotel
developments as the top driver of growth in nonresidential construction
demand over the past year.’
He added, ‘We expect strong tourism activity to underpin further
increases in demand for hotels over the coming years. Meanwhile, demand
for industrial buildings continues to improve. In contrast, demand for
education buildings and healthcare facilities have fallen over the past
year, albeit from very high levels, particularly in Canterbury.’
Population growth and tourism continues
Despite net migration continuing
to slow, population growth (while moderating) and tourism is expected to
underpin many longer-term trends. These include office growth for the
higher number of white collar workers, new accommodation buildings for
the high number of international visitors, strong domestic tourism and
earthquake strengthening activity will also contribute to nonresidential
construction demand
Auckland leads non-residential construction growth
Auckland continues to lead growth
in non-residential construction demand over the past year. Demand
strengthened across a broad range of sectors, with particularly large
increases in demand for hotels and social buildings.
Wellington showing soft business confidence
Business confidence has been
particularly soft in Wellington in the wake of the new government taking
office, and this may further dampen demand for investment in new
buildings over the coming year. The recent announcement by Fletcher
Building that it will stop bidding for ‘vertical construction’ work also
adds uncertainty.
Labour shortages continue
Meanwhile, construction sector
firms continue to report acute labour shortages, especially in skilled
labour. Migrants have helped to alleviate this, with an increase in
technicians and trades’ workers moving to
New Zealand on a work visa.
RLB expects this to continue, given the amount of construction activity
required over the coming years.
Grant concluded, ‘RLB forecasts construction cost inflation to peak at
just below 5 percent before moderating to 4 percent by late 2019. Beyond
that, we expect annual construction cost inflation to ease to around 3.5
percent in late 2020, as capacity pressures in the construction sector
ease.’
--ENDS--
Source: Rider Levett & Bucknall - www.rlb.com
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