Lack of projects hamper construction market

CROSSES TO BEAR: Steel work is still rising rapidly on Stratum Group's Elevate Apartment development in Taranaki St, but the Wellington construction market is flat and expected to keep slowing.
CROSSES TO BEAR: Steel work is still rising rapidly on Stratum Group's Elevate Apartment development in Taranaki St, but the Wellington construction market is flat and expected to keep slowing.

Wellington's construction market is flat, highly competitive and likely to continue contracting well into next year.

Grant Watkins, Wellington director of building consultancy company Rider Levett Bucknall, says residential construction has stopped declining but volumes are still very low.

"There are signs of a recovery with consent levels continuing to increase slowly, but the recent government push to increase home loan deposit levels will have a detrimental effect on this recovery."

The tender market remained very competitive. Tight margins across all contracting sectors ensured competitiveness in securing new work.

"With the shallow pool of current and expected large projects, it is likely that this contracting market will be with us well into 2014.

"Commercial construction in the Wellington region has increased slightly from this time last year, but is still at very low volumes, and mainly smaller projects."

The pace of earthquake strengthening of older properties was likely to increase in 2014.

Large civil projects, such as Transmission Gully and Kapiti Expressway, were gearing up and the Basin Reserve/Buckle Street tunnel project was providing some positive outlook for work in this sector.

But Watkins said the lack of large commercial projects was likely to keep cost escalation under control for some time.

"Our forecasting is indicating very limited growth over the next two years, with more sustained inputs in 2014-15 on the back of the workload appearing in Christchurch."

"We will continue to see the strengthening of older building stock as owners take advantage of the tighter pricing.

"However, with the Christchurch rebuild gaining considerable momentum, it is hard to see a sustained recovery in the Wellington region for some time yet," he said.

RLB's fourth quarter 2013 Oceania Report said the New Zealand economy was firmly in expansion mode.

The Canterbury rebuild was gaining pace, the Auckland housing market was becoming heated and after years of restraint and cost-cutting, business and household spending was rising.

"Auckland has led the cyclical recovery, accompanied by more jobs, incomes and spending.

"Non-residential building is coming out of hibernation, led by Canterbury with the post- earthquake rebuild work beginning to accelerate.

"Profitability in the construction sector is beginning to recover, but margins remain low."

This was expected to improve.

The consultancy estimates construction costs rose this year by 1 per cent in Auckland, 5.1 per cent in Christchurch and 2.0 per cent in Wellington.

Its forecast for next year is a further rise of 4.6 per cent in Auckland, 6.6 per cent in Christchurch, 4.1 per cent in Wellington.

There were signs that prices were rising.

"The volume of work in Canterbury is pulling both labour and materials, such as fabricated structural steel, from Auckland and other centres around New Zealand.

"There is a real risk that once non-residential building activity increases in Auckland, we will see demand outstripping supply, with labour shortages and a rapid rise in construction costs."

Christchurch RLB director Neil O'Donnell said a number of medium sized commercial projects ($10 million-$50m) were under way, with completion expected in late 2014/early 2015.

A couple of larger $50m-plus projects were planned to begin and several larger government- led projects were expected to start in the first quarter of 2014.

The Christchurch City Council was also preparing to let a contract for town hall works and other anchor projects.

O'Donnell estimated there could be more than $3 billion worth of non-residential construction work in Christchurch over the next 4-5 years.

The Dominion Post