Long lead times and rising freight costs challenge Australia and New Zealand’s construction markets

Construction activity across Australia and New Zealand continues at pace over Q3 2021, however, long lead times and rising freight costs are placing further pressure on construction markets, amid ongoing supply constraints and labour shortages.

Our latest Australia and New Zealand market insight report finds that global supply chain pains caused by surging demand, supply shortages and supply bottlenecks continue to push up the cost of key building materials such as steel, timber and electrical materials. This is placing further pressure on Australia and New Zealand’s already constrained construction markets.

As an example, freight costs continue to climb to new record highs, with Australia’s ocean freight index spiking by 38.6 percent in the three months to June 2021 and this is adding long lead times and additional cost to imported materials.

Skilled labour shortages continue to be felt across both countries, with international and state border restrictions increasing pressure on the industry.

Despite these significant challenges, construction activity presses on, particularly in the public sector. The outlook is positive, with an increase in activity forecast for 2022 onwards when the private sector is expected to recover in line with international borders opening to non-Australian and non-New Zealand citizens.

Our construction cost escalation forecasts for non-residential projects in 2021 have been revised up to 5 percent for Auckland and Perth, 4.5 percent for Brisbane and Sydney, 4 percent for Adelaide, Christchurch, and Melbourne.

Low private investment slows economic recovery

Australia’s economy expanded by 0.7 percent over the second quarter of 2021, after an upwardly revised 1.9 percent in the first quarter. Despite growth easing over Q2, the full impact of the COVID-19 lockdowns across New South Wales and Victoria are yet to be felt and are expected to result in the economy contracting over Q3. Following this, the economy is expected to return to growth over Q4, as COVID-19 restrictions ease across the country.

In New Zealand, the economy expanded by 2.8 percent over the second quarter of 2021, up from 1.4 percent growth in the first quarter. This higher-than-anticipated growth was led by an increase in retail trade and the accommodation and food services industries. With the reimplementation of lockdowns amid the outbreak of the Delta strain of COVID-19, growth is expected to slow over Q3.

Empowering the construction industry to turn over a new leaf

As one of the most significant contributors to global carbon emissions, the way that the construction industry constructs, manages, and operates built assets is a central focus in the race to reach net zero carbon (NZC).

In the run-up to COP26, this quarter’s report focuses on net zero carbon (NZC) and the actions we need to immediately take to minimise emissions. We ask our NZC subject matter experts to provide on-the-ground insight into setting and implementing a NZC strategy, achieving KPI’s and managing the supply chain through a programme management approach, and methods to manage CAPEX spend to revitalise ageing assets.

 

Download the report to read more about the challenges and opportunities affecting the construction industry in New South Wales, Queensland, South Australia, Victoria, Western Australia, Auckland and Christchurch.

 

For further information contact:

Simon Kearney
Director - Real estate

t: +61 282 450 000
e: