Construction costs to peak in 2022

Construction costs

According to a CBRE report, Australian construction costs should peak this year and moderate in 2023 after increasing in recent months due to inflation, economic stimulus, and supply chain challenges.

The investment management firm says it harnessed its data from Turner & Townsend, a global professional services company and its subsidiary specialising in program and project management, and cost consulting across the commercial real estate, infrastructure, and natural resources sector.

“While a sharp increase in construction costs is putting pressure on Australia’s development pipeline, margins and timelines, most cost escalations have now been built into project pricing, particularly for building materials, and improvements are expected in early 2023 with cost increases from next year onwards to be largely driven by higher wage costs,” Kate Bailey, CBRE Research Director, says.

CBRE notes the report highlights that unprecedented capital for large infrastructure projects, a residential construction boom, surging transport costs and increased pressure on freight costs and reliability have combined to drive increases across all key material and staffing indicators in the past 12 months.

Despite this, it says there are positive signs ahead with residual construction from the federal government’s HomeBuilder program expected to keep Australia’s residential pipeline elevated and migration levels forecast to improve in 2023.

“Recent construction works to repair flood damage have also driven up material costs in Queensland, with continued population growth and infrastructure development ahead of the 2032 Olympics likely to see high construction costs persist,” Kate says.

Perth and Brisbane are expected to experience the greatest year-on-year state construction cost increases in 2022, of seven per cent and six per cent respectively.

In Perth, a significant infrastructure pipeline is contributing to the demand for materials, with border closures and competition from the mining sector having constrained Western Australia’s labour supply and driven wage increases.

The pressures in Brisbane include a boom in residential construction and a series of major infrastructure developments, including the Cross River Rail and Queens Wharf projects, which are heightening the demand for materials.

CBRE’s report highlights that Australian price increases have been recorded across all key material and staffing indicators in the past 12 months, with the cost of structural steel increasing the most (+39.5 per cent per ton) followed by plasterboard (+35.3 per cent per sqm).

The cost of labour also spiked, with the average cost of a site foreman increasing by 11.5 per cent per hour.

Ms Bailey notes that most recent construction contracts had priced in cost rises in materials, which would mitigate risks to developers, with the cost of labour expected to be the key driver of construction cost increases from 2023 onwards.

For more information on CBRE, click here.

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