Public sector supports growth in overall construction market activity

  • Infrastructure and public works drive increase in headline construction workloads 
  • Gap between conditions in the North and South Islands widens 
  • Acute skills, labour shortages persist; tight margins constraining market activity 

Participants in the Q3 2019 RICS Construction and Infrastructure Survey in New Zealand indicate that overall market conditions remained relatively buoyant in the third quarter of 2019. The level of total workloads was said to have increased over the past three months, albeit at a slightly slower pace than was reported in Q2 (in net balance terms). However, much of the increase in activity was a result of increased public outlays while activity on private construction projects cooled from Q2.

Activity slows in the South 

The stark difference in conditions between the North and South Islands continues to skew the headline results to some degree. Apart from a slowdown in the growth of construction on private residential projects, contributors from the North Island of New Zealand reported continued growth in both private and public projects. The situation was markedly different than on the Southern Island, where the slowdown in construction following the Earthquake rebuild in Christchurch appears to have turned into a contraction.

Lack of skills, people 

As in previous quarters, respondents highlighted an acute shortage of skills in the market. Unsurprisingly given the relative underlying market conditions, this was noted more on the North Island than the South Island. Participants noted a shortage of quantity surveyors, project managers and skilled tradesmen while North Island respondents also highlighted a more general shortage of labour. 

Tight financing remains a drag 

Several survey respondents commented that various financial constraints were also a drag on the market. Tight margins were cited as a catalyst for a rise in construction company defaults. Meanwhile, some contributors also noted that tight local government budgets have slowed the launch of public projects.

North Island

Contributors on the North Island continue to report a robust increase in aggregate workloads (in net balance terms) in the third quarter. However, there was a slight moderation in the growth in activity across the board, which was more acute for residential construction projects. Meanwhile, work on infrastructure projects was said to have picked up slightly from Q2, driven primarily by increased activity on rail and airports. 

The pipeline of new work and new business enquiries remained strong, although the cost of materials for construction and headcounts rose considerably in net balance terms. Pressure on margins, however, appeared to ease during Q3, in line with respondents expectations that margins are poised to expand (along with aggregate workloads) over the next twelve months. 

South Island

The infrastructure-driven increase in overall workloads that respondents on the South Island noted in Q2 appears to have slowed in Q3. Although work on infrastructure projects was said to have increased in Q3, in net balance terms it did so at a softer pace than in Q2 and could not offset declining workloads on commercial, industrial and residential projects. 

Against this backdrop, new workloads and enquiries were little changed during the third quarter, while payment delays and the cost of material saw moderate increases. Profit margins deteriorated and are expected to continue to do so throughout the next year. 
Although total workloads are expected to increase over the next twelve months, the pace of growth is expected to be substantially slower than what is anticipated by North Island contributors.

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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 along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.