Increased demand and rising costs put pressure on construction market

Respondents to the RICS 2018 New Zealand Construction and Infrastructure survey reported higher demand across the market in Q3 (Chart 1). This was led by public residential workloads, while workloads for infrastructure and private commercial projects also expanded at a robust pace (in net balance terms). The increase in demand was slightly skewed more towards new projects rather than the repair and maintenance of existing projects.

Despite this increase in demand, contributors reported a moderate compression in profit margins (Chart 2). This compression was mostly felt in Canterbury, as respondents in Auckland reported little change in margins during the third quarter.

This phenomenon may be partically explained by higher costs, which, in net balance terms, are expected to grow at a faster pace than workloads over the next year, as shown in Chart 4. Thus despite fairly bullish outlook for workloads, profit margins are expected to change little in the next twelve months.

A shortage of skilled workers may be a contributing factor to eroding margins, as 84% of respondents identified this as a factor holding back activity (Chart 3). Chart 5 shows that more than 50% of respondents identified a shortage of quantity surveyors and commercial managers (60%), carpenters and joiners (56%), and plumbers (53%). Project managers, and other skilled trades are also seen as being scarce.

A majority of respondents also identified a number of other factors, such as a shortage of labour (78%), financial constraints (71%), planning and regulation (65%), cost of materials (65%), and competition (58%) as being a drag on activity.

Meanwhile, Chart 6 indicates that the majority of respondents see little change in credit conditions over the next three and twelve months. Though over both periods, expectations are slightly skewed towards a deterioration more so than an improvement.

Respondents reported an increase in workloads for all infrastructure segements. Airports, roads, rail and water and utilities projects saw the quickest growth during Q3 in net balance terms (Chart 7). As shown in Chart 8, workloads on harbours and ports are expected to see the quickest increase over the next year, though 30% of contributors expect water and utilities workloads to see the strongest growth over the next twelve months.

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About the Construction and Infrastructure Survey

RICS’ Asia-Pacific and Middle East Construction and Infrastructure Survey is a quarterly guide to the trends in the construction and infrastructure markets. The report is available from the RICS website.

Contact | Rachel Foster

As Sector Insights & Research Advisor, Rachel is responsible for gathering up-to-date property data and information to help you drive your business. Her research assists in formulating our advocacy priorities and provides benchmarking and statistical data to inform your decision making. 

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