Volatile market conditions increase Australia and New Zealand’s construction industry risk

Construction markets in Australia and New Zealand continue to heat up, with market sentiment improving considerably over the last twelve months.

Our latest Australia and New Zealand market intelligence report finds that construction activity across Australia and New Zealand has continued to surge, driven by strong public sector activity. Despite this growth, volatility in global markets, rising inflation and ongoing supply chain disruptions are raising concerns about how much further construction costs will rise in 2022.

Despite market sentiment improving considerably over the last 12 months, strong construction cost growth in 2021 has continued to keep the private sector cautious about the outlook for 2022. With inflation continuing to rise, ongoing global supply chain disruptions and the most recent crisis in Ukraine, there are growing concerns across the industry about how another year of strong price growth could have a considerable impact on projects. 

Our construction cost escalation forecasts for non-residential projects in 2022 have been revised up to 3.5 percent for Melbourne, 4.5 percent for Adelaide, 5 percent for Brisbane, Christchurch and Sydney, 6 percent for Auckland. and 7 percent for Perth.

Economies remain resilient through volatility

Australia’s economy has remained resilient through volatile global market conditions and ongoing supply chain disruptions. Following on from the lockdowns in New South Wales and Victoria in Q3 2021, the economy rebounded by 3.4 percent in the last quarter of 2021, while expanding by 4.2 percent through the year. New Zealand’s economy returned to growth in Q4 2021 expanded by 3 percent over the last quarter of 2021 due to the easing of COVID-19 restrictions and improved consumer confidence.

Global supply chain disruption is continuing to cause considerable challenges on projects under construction and in the pipeline, with further pressure following the Russian invasion of Ukraine. In Australia, investment activity fell over Q4 2021, a clear example of how rising construction costs are starting to affect activity. New Zealand investment activity increased by 13.8 percent over Q4 2021, but skilled labour shortages continue to place considerable pressure on the construction market.

Reinventing global supply chains

Construction projects are highly reliant on complex global supply chains. This has been brought into sharp focus over the last two years with a global supply crisis driven by pent-up demand, the pandemic, a lack of capacity at ports, and rising shipping costs.

In this report, we examine how the construction industry will be impacted by the war in Ukraine, and look at how businesses can combat the ongoing supply crisis and reinstate delivery certainty back into their projects.

Download the report to read more about the challenges and opportunities affecting the Australian and New Zealand construction industries.

For further information contact:

Simon Kearney
Director - Real estate

t: +61 282 450 000