Rider Levett Bucknall's recently released International Report confirms that highly competitive tendering environments continue across New Zealand, as new opportunities remain scarce.
Prepared by RLB Research and Development, the bi-annual International Report (IR) uses global cost data to derive indexed measures of relative costs of construction within and between 33 key global markets.
Mr Brian Dackers, Chairman of Rider Levett Bucknall commented, "The advent of the global credit squeeze has resulted in a drastic slowdown in global growth, with the effects being felt by all economies worldwide. For construction, the time-consuming process of freeing-up of financial markets and credit availability is still required before the re-establishment of full confidence in residential, commercial and retail sectors, which only then will result in more projects coming to market."
"However, in most global cities, we are seeing the difficult market conditions are providing an excellent tendering environment for clients of the industry who do have liquidity of funding."
In New Zealand, the report found that new construction activity continues to struggle to significantly revive from the effects of the local and international economic downturn. Although nascent signs of growth are beginning to emerge in some local market sectors, most activity reflects government infrastructure spending initiatives.
Rider Levett Bucknall's International Report indicates that as at October 2009, New York, London and Darwin are the most costly cities in the global analysis in which to build. In New Zealand, Wellington is the most costly city in which to build, followed closely by Auckland then Christchurch.
New York, ranked as the most costly city in the analysis in which to build, is 34% more costly than New Zealand's most costly city Wellington, 36% more than Auckland and 39% more costly in which to build than Christchurch.
The cities which had experienced the most contraction in construction costs globally since the release of the January 2009 IR were Singapore (17.3 %), Dubai (15.5% decrease) and Macau (12% decrease).
In New Zealand, all cities underwent a contraction in construction costs since January 2009 including Wellington (4.5% decrease), Auckland (4.5% decrease) and Christchurch (1.0% decrease).
The Wellington market, although assessed as now reaching the trough of the construction market activity cycle, is in better shape than this might infer. The industry as a whole has been downsizing over the past 18 to 24 months from a four year market high, and Rider Levett Bucknall believes more fallout may occur. This resource adjustment, coupled with a reasonable flow of projected work coming through, will sustain the local industry in the short to medium term.
Hugh MacKenzie, Managing Director, Rider Levett Bucknall Wellington commented, "The market is being sustained through the completion of a number of multi-million dollar commercial developments commenced prior to the onset of the recession (some with another 20 months to run), and is being supported by a resurgence in the housing market, and the civic, education, retail, health and civil sectors. We trust this upward turn in the trough will be in the form of a V rather than a W recovery."
Market conditions generally remain subdued with the residential market dire. Other non-residential construction also remains in decline with the exception of the infrastructure sector which continues to profit from central government spending. Contractors however are reporting that enquiries are increasing with more tender opportunities and they have a more positive outlook than reported last quarter.
Mr Dackers commented, "Construction costs have continued to ease, though bottoming out, with cost pressures to come due to increasing international commodity prices and a possible depreciation of the NZ$ which is very high at present. We see competitive market conditions are set to continue for the balance of this year."
Christchurch economic conditions appear to have stabilised. High value major projects such as the new Civic Building, AMI Stadium and Christchurch Airport Redevelopment are keeping some sectors of the industry busy.
Mr Neil O'Donnell, Director Rider Levett Bucknall Christchurch added, "The residential and commercial sectors in general remain quiet, whilst education and health sectors remain relatively busy with small to medium sized projects."
"Tendering for these projects is highly competitive with associated low margins. Government announcements regarding infrastructure projects locally and nationally have increased optimism in the road sector. These conditions are likely to continue in the short term with a large number of tenderers competing for the opportunities that do exist," he said.