Rider Levett Bucknall's Forecast 53 report - New Zealand Trends in Property and Construction - released today confirms that construction costs in New Zealand will continue to ease in the short-term.
Prepared by the New Zealand Institute of Economic Research (Inc) (NZIER) exclusively for Rider Levett Bucknall, the report states that construction cost escalation is forecast to continue easing until early 2010, as investment in non-residential buildings declines.
Forecast 53 predicts the recession is likely to linger through to the September quarter of 2009, before the economy resumes growing in the December quarter. The recovery will be assisted by rising immigration boosting the population, but the main factor will be the realisation of pent-up demand as the considerable stimulus to private consumption that has been building up in the economy at last gains traction.
Hugh McKenzie, Managing Director of Rider Levett Bucknall's Wellington office commented, "As we see economic growth commence to accelerate domestically and building investment starts growing again in residential and commercial property over 2010 and 2011, we forecast both quarterly and annual cost escalation across New Zealand."
Rider Levett Bucknall's Forecast 53 indicates slightly higher cost escalation in the short run, but lower cost escalation in the longer run. Current building consents data and building investment forecasts suggest a lower volume of non-residential building work over the next two years, but of higher average value. The earlier upturn in residential building investment will also start to put pressure on some building costs. Cost escalation will remain relatively low over the forecast period, as the economy faces a long, slow recovery.
Average construction costs across New Zealand are forecast to increase by 0.5% in 2009, increase by 1.3% in 2010, 1.6% in 2011 and 2.2% in 2012.
Mr McKenzie commented, "Whilst data within Forecast 53 shows annual record levels of non-residential work put in place and building consent provides the industry with a glimmer of hope for on-the-ground activity to sustain New Zealand's construction workforce, many are still nervous about the industry's long-term prospects."
"Historically, growth in residential building tends to move in time with, if not lead, economic growth, whilst growth in non-residential building significantly lags economic upturns and downturns."
NZIER estimates the total value of non-residential building investment to have grown 3.1% over the year to March 2009, but expects it to fall 12.7% over the March 2010 year and 6.2% over the March 2011 year, before rebounding to 10.8% growth over the year to March 2012