Property and Construction Cost Consultancy Advisory Services. Presented by Andrew Suttie Director Adelaide ACIF Briefing 29 September 2011

Transcription

1 Property and Construction Cost Consultancy Advisory Services Presented by Andrew Suttie Director Adelaide ACIF Briefing 29 September 2011

2 Construction Analysis Where are we Now and where are we Going?

3 Introduction Global Markets Europe US China Australian Construction Market Residential Non-Residential Public vs Private activity State Construction Markets Adelaide Brisbane Canberra Melbourne Perth Sydney

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5 Global Markets Europe Liquidity Crisis European banks overexposed to sovereign debt problems Vicious cycle for EU Banks Market nervousness; share price falls; restricted supply of short-term funding from US money markets. European Construction looked to have stabilised 1st Half 2011 However further softening likely: Basel III tighter lending regulations; lack of access to global money markets; general market volatility. P.I.G.S. (Portugal, Ireland, Greece, Spain) European Construction GDP (Mn EUR) 720, , , , , , ,000 Construction Sector Barometer - EMEA 100% 90% 80% 70% 60% 50% 40% 30% 20% Source: ABS Who will be next? Blue = BAD 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

6 Global Markets US Recent downgrade of US credit rating Political stalemate over debt ceiling brinkmanship Markets question strength and duration of US recovery Unemployment remains historically high over 9% Residential demand has failed to recover from subprime collapse and GFC Demand for new homes still extremely weak Foreclosure pipeline still high US Construction GDP (Mn USD) 700, , , , , , % Construction Sector Barometer - Americas 90% Source: ABS 80% Unemployment, foreclosures, falling sales delaying any rebound Depriving economy of strength and the catalyst (construction) for early growth seen in past recoveries 70% 60% 50% 40% 30% 20% 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

7 Global Markets China Shining light amidst global economic turmoil GDP set to grow 8.8% for 2011; 7.8% for 2012 Slower but persistently strong growth Inflation remains key concern Up to 6.5% in July but back to 6.2% in August Economic adjustment since the GFC 2007, Net Exports represented 18% of its 14% GDP growth 1H 2011, Net Exports represented -0.7% of its 9.6% GDP growth Illustrates the economy is shifting from export-based to being driven by domestic consumption and Fixed Asset Investment (FAI) This strong 23-25% FAI growth is bullish for commodities demand Increased construction and industry activity gobble resources Strong catalyst for Australian economic prospects Chinese Construction GDP (10 Mn CNY) 200, , ,000 50,000 0 Source: ABS Construction Sector Barometer - Asia 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

8 Australian Construction Overview Construction Work Done in 2010 bn Residential $48.3 Non-Residential $37.7 Engineering $79.5 TOTAL $165.5bn Source: RLB, ABS

9 Australian Construction Residential ($48.3bn work done in 2010) Housing Volume of work done fell 3.1% FY sparked by GFC turmoil Gov. stimulus (1 st Home Owners Grants) boosted levels in FY but fell 4.1% in FY % lower than pre-gfc levels Apartments/other Residential Work Done Continued growth of 6.7% in volume of work done for FY followed by a slight pull back in FY Significant jump of 16.2% in FY Work Commenced A more volatile and market reactive indicator that strongly correlates with market sentiments FY saw a huge fall of 24.4% in volume of commencements Equally strong rebound of 27.3% in FY on back of growing positive market sentiment 30% 20% 10% 0% -10% -20% -30% Other new residential buildings (Apartments) -2.6% 16.4% Sep 07 - June 08 (FY ) Pre GFC 6.7% -24.4% Sep 08 - June 09 (FY ) GFC -0.4% 27.3% Sep 09 - June 10 (FY ) 16.2% Work done YoY % change Work commenced YoY % change Sep 10 - June 11 (FY ) Source: RLB, ABS

10 Australian Construction Non-Residential ($37.7bn work done in 2010) Commercial Construction Value of Work Done declined 47% over 2009 after peaking in late 2008 before GFC 2010 saw a 30% recovery which has again been almost completely eroded over 1 st half 2011 Industrial Also trading at historically high levels at GFC and declined 49% to early 2010 Recovery took place in 2010 before falling over 1 st half 2011 to 46.3% below 2008 highs Despite weakness within privately dominated sectors, Non-residential construction in sectors targeted by Federal Gov. stimulus have performed markedly different. (particularly education and Health)

11 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Mar- 09 Jun- 09 Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep- 10 Dec- 10 Mar- 11 Australian Construction Private vs Public Activity Post GFC ($Mn) Work done (current value) by sector Non-residential Work Done by sector indicates the significant contribution public-funded construction has had post-gfc BER package in Education sector Activity winding down 10,000 8,000 6,000 4,000 2,000 0 Industrial Retail Offices Education Health Stark difference in Public/Private market contributions to volumes of Work Done pre-gfc and post-gfc Overall volumes falling with Private sector yet to pick up slack as public spending winds down ($Mn) 12,000 10,000 8,000 6,000 4,000 2,000 0 GFC Source: RLB, ABS Volume of work done (Non-residential buildings) Public Private GFC Source: RLB, ABS

12 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 SA Construction Construction Activity Adelaide has had a steady work flow in recent years after a peak of activity in mid 2008 pre the GFC. Federal Government Stimulus Packages BER (Schools Project), Social Housing and Higher Education Funding assisted the construction industry for a period of two years. The South Australian Government has had a steady flow of projects in recent years Health sector (FMC, QEH, LMH) Universities have also been quite active Federal Funding (UniSA & Adelaide Uni) Defence projects: Hardened Networked Army resulting in the relocation of the 7th RAR to RAAF Edinburgh RAAF base expansion and Techport (AWD). ($Mn) 3,000 2,500 2,000 1,500 1, SA Construction Source: RLB, ABS

13 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 SA Construction Market Competition As Government Stimulus Packages wash through, SA construction market has tightened considerably particularly amongst small to medium contractors. Competition in the $5M - $15M range is fierce Tender prices (not sustainable) for most trades has dropped below the pre GFC 2008 highs. (BACK TO DEC 2007 PRICE LEVELS). Significant competition is also impacting on larger projects driven by: Suppliers and subcontractors who previously serviced the small to medium market now offering services on larger projects. Recent introduction of four Tier 1 builders has introduced new subcontractors and suppliers into the SA market increasing competition (Dec 2005 = 100) Adelaide Tender Price Movements 3.5% fall 2011 Source: RLB

14 SA Construction Major Future Projects New Royal Adelaide Hospital (NRAH) Awarded to a consortium of Leightons and Hansen Yuncken Significant project ($1.7B) largest single health spend ever. Less than 15% of the construction cost is expected to be spent in the first year up to June 2012, completion by 2016 River Bank Precinct This project comprises four major components: Adelaide Oval Redevelopment (approx. $450M) Adelaide Convention Centre (approx. $350M) SKYCITY Casino Redevelopment / Expansion (announced as a $250M project) Riverbank Urban Precinct (approx. $150M) Mining A new deep water port at Port Bonython ($700M) has been recently released to interested consortia RLB have seen the impact of a buoyant mining sector on all aspects of the construction industry through its - Perth office. The pattern is expected to repeat in SA, albeit at a slower rate These projects will call heavily upon skilled labour resources and may cause a spike in market escalation and costs together with a scarcity of skilled resources for commercial construction projects.

15 SA Construction Carbon Pricing Published indications on material price rises are limited, e.g. cement and steel to be compensated, imported materials shouldn t be affected, etc. Market supply and demand factors will determine whether any underlying cost increase is passed on immediately after 1 July ACCC will be given the responsibility to expose any perceived price gouging as a result of the introduction of a carbon tax. RLB s Research & Development team in Melbourne are working up some models but will hold off until more details are available on companies affected and levels of compensation, etc. RLB suggest that a 1.5% - 2% increase range is the likely outcome, with so many unknowns

16 SA Construction Summary 1. Australian economic fortunes remain subject to the ability of major global economies to resolve current market turmoils. 2. A return of market confidence would see an increase in private sector funded projects to replace public funded work 3. Major projects such as the New Royal Adelaide Hospital, the Riverbank Precinct Adelaide Oval Redevelopment, Adelaide Convention Centre, SKYCITY Casino and the commencement of a massive infrastructure spend associated with mining, in particular, Olympic Dam, are expected to cause a significant spike in construction costs and escalation over the next few years. 4. It is our belief that a window of opportunity exists in the major ($50M +) project range for a period of the next 6-9 months if not a year. 5. After this period, the opportunities will become available for subcontractors and suppliers to make commitments and secure work which will increase cost levels and market escalation. 6. It is our belief that projects committed within the next year will attract favourable tender outcomes.

17 Thank you Presented by Andrew Suttie Director Rider Levett Bucknall Level 4 63 Pirie Street Adelaide SA 5000 p e andrew.suttie@rlb.com w app rlb.com/app