News: Brisbane Construction Costs Under Control Despite Building Boom

Despite Brisbane experiencing its biggest apartment boom in history, construction costs have increased at less than half the rate of the last boom years from 2003 to 2005, the Australian Bureau of Statistics (ABS) has revealed.

New figures from the ABS highlight that building costs grew by 13 per cent year on year in 2003 but by only 5 per cent in 2015.

This is despite the current peak of quarterly apartment starts at 6155 compared to 4323 in the previous boom during 2003.

Gary Emmett, Head Economist for global professional services firm Turner & Townsend said: “As cost managers and project managers on many residential projects in Brisbane, we are finding that at this stage of the investment cycle, construction costs should be increasing more than they actually are.”

“It is unusual to see the relatively low rate of building cost increases, during Brisbane’s biggest apartment boom. There are several reasons for this.”

“Most of the construction activity is focused on the residential sector – there is very little work currently in the office, hospitals, resources and infrastructure areas. These other sectors were very active in previous cycles.”

He added, “With resources construction slowing significantly, numbers of fly in fly out workers are returning to Brisbane. Interstate and Gold Coast contractors are also now working in Brisbane and major tier 1 contractors such as Brookfield Multiplex are involved in apartment projects, bringing their significant resources to the sector as there is less work to do outside the apartment sector.”

Whilst the increased tier 1 contractor competition in the market is favourable, choosing your supply chain with the right skills and capability at the outset is critical to project success.

Mr Emmet said that several forces had been at play to drive Brisbane’s biggest construction boom including low interest rates; expectations of price growth; an undersupplied market in the last few years; and a low dollar has meant Australia is an attractive haven for overseas investors.

The apartment boom has coincided with the end of the mining boom, which has helped create a surge in trade worker availability to service the upswing in Brisbane activity.

Robert Sobyra, Director – Evidence & Data from Construction Skills Queensland, said: “There is no skills shortage in Brisbane which is being felt in other parts of the country. At the height of the boom in 2013 there was about $60 billion worth of construction activity in Queensland. We had a workforce of about 230,000 to meet that demand.

“Since then the activity level has dropped some 30 per cent while the workforce dropped only 10 per cent. A lot of the capacity has stayed in the system to soak up demand from other sectors, especially the apartment boom in South East Queensland. There is no shortage because workers coming off the mining boom were able to soak up the demand in South East Queensland. The timing was just perfect.”

Mr Sobyra added, “A trend we are also now starting to witness is an increase in the apprentice intake in Queensland’s construction industry. There was a 54 per cent increase in new construction apprentices per hundred workers over the last decade. It bucks a national trend that seems to be turning away from apprentices. The pipeline for future workers is in very good shape.”

It is expected the next investment focus in Queensland will be hotels, leisure, recreation and resorts. Mr Sobyra said: “These focus areas will be driven by the low Australian dollar and massive increases in Chinese tourists to Australia which is evident in the latest Tourism Research Australia figures highlighting that short term visitor numbers in 2000 were around 100,000. Today they are approximately 900,000.”

“Consumer demand is here, profits follow demand and investment follows profits. The signs are all very positive for a bright future in the Queensland construction industry.”