NEW ZEALAND TRENDS IN PROPERTY AND CONSTRUCTION SECOND QUARTER 2012

Transcription

1 NEW ZEALAND TRENDS IN PROPERTY AND CONSTRUCTION SECOND QUARTER 2012

2 OFFICES AROUND THE WORLD 0508 ASK RLB OCEANIA EMEA ASIA AMERICAS AUSTRALIA Adelaide Brisbane Cairns Canberra Darwin Gold Coast Melbourne Newcastle Northern NSW Perth Sunshine Coast Sydney Townsville Western Sydney NEW ZEALAND Auckland Christchurch Otago Palmerston North Tauranga Wellington MIDDLE EAST Abu Dhabi Doha Dubai Muscat Riyadh UK Birchwood/Warrington Birmingham Bristol London Manchester Newcastle Sheffield Welwyn Garden City Wokingham EUROPE RLB EuroAlliance Austria Belgium Bulgaria Czech Republic Estonia France Germany Greece Hungary Ireland Italy Kazakhstan Latvia Luxembourg Malta Netherlands Norway Poland Portugal Romania Russia Spain Sweden Slovakia Slovenia Switzerland Turkey Ukraine CHINA Beijing Chengdu Chongqing Dalian Guangzhou Guiyang Haikou Hangzhou Hong Kong Macau Nanjing Shanghai Shenyang Shenzhen Tianjin Wuhan Wuxi Xian Zhuhai India Mumbai INDONESIA Jakarta MALAYSIA Kota Kinabalu Kuala Lumpur PHILIPPINES Cebu Davao Manila SINGAPORE Singapore SOUTH KOREA Seoul THAILAND Bangkok VIETNAM Ho Chi Minh City CANADA Calgary CARIBBEAN Barbados Grand Cayman USA Boise, ID Boston, MA Denver, CO Hagåtña, GU Hilo, HI Honolulu, HI Kennewick, WA Las Vegas, NV Los Angeles, CA Monroe, WA New York, NY Orlando, FL Phoenix, AZ Portland, OR San Francisco, CA Seattle, WA Tucson, AZ Waikoloa, HI Washington, DC Cover: Wellington Harbour, Wellington New Zealand Disclaimer: While the information in this publication is believed to be correct at the time of publishing, no responsibility is accepted for its accuracy. Persons desiring to utilise any information appearing in the publication should verify its applicability to their specific circumstances. Cost information in this publication is indicative and for general guidance only and is based on rates as March National statistics are derived from the Australian Bureau of Statistics (ABS) and Statistics New Zealand.

3 INDEPENDENT CONSULTANTS LOCAL KNOWLEDGE AND EXPERTISE GLOBAL NETWORK Rider levett bucknall forecast construction market intelligence Rider Levett Bucknall are independent property market and construction cost consultants with offices located globally. Prepared by the New Zealand Institute of Economic Research (Inc.) exclusively for Rider Levett Bucknall, Forecast is produced quarterly and provides detailed local construction market intelligence and knowledge. Forecast is supplemented by Rider Levett Bucknall's bi-annual construction market intelligence publications: the Oceania Report, International Report and Gulf Reports. key points in this issue Canterbury earthquake The Canterbury rebuild has begun, but is still modest. Persistent aftershocks and uncertainties around the city plan, building codes and insurance are slowing the recovery. Building activity Construction work will be slow in 2012, but pick up gradually heading into Earthquake strengthening, leaky building repairs and the Canterbury rebuild will be important drivers, but these may displace other building work. Building consents Non-residential consents have stabilised at a historically low level. There are emerging signs of a gradual recovery, particularly in the private sector, which bodes well for a recovery in Building confidence Builders are very confident in Canterbury, but there is little momentum elsewhere. Building costs Non-residential building costs are increasing modestly, after falling in recent years. The majority of price increases have been in Canterbury, as prices are generally falling elsewhere. NZIER expects prices to rise gradually over coming years as the economic recovery gathers momentum. Rider Levett Bucknall s Smartphone app. Download direct from your app store. Available on iphone, Android, Windows Phone7 and Blackberry Operating Systems.

4 Figure 1 Annual non-residential building work put in place $ BILLION NOMINAL 3.5 REAL OR EXCLUDING PRICE EFFECTS YEAR Source: Statistics New Zealand Figure 2 Annual non-residential building work put in place by sector $ BILLION COMMERCIAL 1.2 MISCELLANEOUS EDUCATION FACTORIES AND INDUSTRIAL HOTELS AND BOARDING HOUSES HOSPITALS AND NURSING HOMES Source: Statistics New Zealand YEAR 4

5 Building activity trends Non-residential construction activity has slowed to the slowest level since 2004 (Figure 1). Non-residential construction consents are lifting off their recent lows. However, construction activity has not yet fully reflected the weakness in consents, because the lags between a consent and work done vary for big commercial projects will be a difficult year for nonresidential construction. The outlook for 2013 and beyond is improving. There are encouraging signs of improvement in some vacancy indicators and new consents. Demand appears to have stabilised for the office and retail sectors. Demand for industrial buildings is growing strongly from the logistics segment, offsetting manufacturing sector weakness. Residential construction activity remains bleak. Consents in 2011 were the lowest since the Great Depression of the 1930s. But there are emerging signs of a recovery, which will come through in late 2012 and in The recession was particularly disruptive for the housing market. Many of the job losses were for the young and typical first time flatters, those under 25. Job losses were also intense for those with growing families, those in their 30s to 40s. This reduced the household formation rate and the demand for new houses. But this is now slowly improving and new households are getting smaller, which equates to more houses at a given rate of population growth. Canterbury delays A year after the devastating earthquakes in Canterbury, progress on the new builds and repairs has been slow. The work has been hampered by continued aftershocks, issues around the city plan, building code and insurance. The repair and rebuild programme will pick up at some point, but the schedule is a moving feast. We expect a gradual pickup in late 2012, strengthening over 2013 and House prices and rents are picking up in Canterbury for houses that are still in good shape. This will intensify as 20,000-30,000 workers will be needed at the peak to do the repairs and reconstruction. 5

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7 Building activity outlook Economic growth and building investment The economy is flat. There is little momentum in the domestic economy and the world remains a risky place. Deleveraging remains the key theme, with households and the government repairing their financial position. This means a gradual but sustainable recovery, allowing time to reduce accumulated imbalances. NZIER expects only 1.5% economic growth in 2012, recovering to 2.4% in The rebuild in Canterbury will ramp up gradually from mid-2012 through to The RBNZ and Treasury are more optimistic on the rebuild and thus the economic outlook. But persistent aftershocks, tougher building codes and insurance issues will slow the rebuild. Non-residential construction activity will slow in 2012, as the slump in consents flows through to work done. NZIER expects non-residential construction activity to fall by 2% in 2012, but pick up by 7% and 3% in 2013 and 2014 respectively. Rebuilding work in Canterbury will be small for the non-residential construction sector. The CBD will take many years to fix; the suburbs will benefit instead. In official data the demolition will count as work, so it will give an inflated view of construction. 7

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9 Figure 3 TOTAL Construction activity ANNUAL SPEND, $ BILLION 30 FORECAST Statistics New Zealand, NZIER forecast Figure 4 Intention to invest in new buildings NET % OF FIRMS, SEASONALLY ADJUSTED CHRISTCHURCH REST OF NZ YEAR Source: Statistics New Zealand, NZIER forecast 9

10 Interest rates and exchange rates The RBNZ will hold interest rates steady for some time, as the economic outlook is flat and inflation is subdued. We expect the OCR to remain at 2.5% until mid Any increases thereafter will be contingent on a recovery in the New Zealand and global economies. While interest rates are very low, they are yet to revive demand for credit. Typically low interest rates discourage savings and encouraging borrowing. To date, the opposite has happened, with savings rising and little credit growth. This means the transmission of low interest rates is muted. Until there is a noticeable lift in lending relative to deposits, the RBNZ should not pre-empt a recovery and inflation by raising rates. The RBNZ fears a spill over of inflation from the Canterbury rebuild to the rest of the economy. The rebuild is yet to start in earnest and so far any construction inflation has been contained within Canterbury. The NZD remains elevated on a trade weighted basis. This reflects worse economic conditions in many of our major trading partners, particularly the Eurozone, USA and UK. There are no speedy solutions to these divergences and the NZD is likely to remain elevated for some time. Building industry confidence Building sector confidence has improved over the past year, but much of this reflects expected activity around the Canterbury rebuild. For example, intentions to invest in new buildings are very high in Canterbury, but low elsewhere. This pattern is clear across most construction indicators in NZIER s Quarterly Survey of Business Opinion. Building consents Non-residential building consents by value have stabilised at the lowest level since 2005 (Figure 5). Excluding price effects the total volume of work is very weak. The floor area of non-residential building consents, which is a good indicator of volumes, has stabilised at the lowest since the early 1990s (Figure 6). The value of consents per square metre is stabilising, consistent with recent falls in construction costs starting to reverse. Residential consents have lifted in recent months, but remain very low compared to history. The number of consents, when adjusted for population, is at the lowest level since the Great Depression of the 1930s. Net outward migration and a soggy job market are holding back a recovery. 10

11 Figure 5 Annual non-residential building consents $ BILLION Source: Statistics New Zealand YEAR Figure 6 Annual total floor area and average value of consents Floor area in millions of m2, left scale; Average $ value per m2, right scale SQUARE METRES (MILLION) 4.0 $ PER SQUARE METRE 2, ,900 1, ,500 TOTAL FLOOR AREA (LEFT AXIS) AVERAGE VALUE (RIGHT AXIS) ,300 1, YEAR Source: Statistics New Zealand 500

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13 Consents by sector Non-residential consent issuance is stabilising. There has been improvement recently in some sectors, such as retail, office and farms. Many of the mainstays of the construction sector, such as factories and industrial buildings, remain very weak. There is a real slump in some sectors, following very strong growth ahead of the RWC. This particularly affected the accommodation, social and cultural segments. The more commercially driven sectors, like retail, office and industrial, are also very weak, but they seem to have bottomed. Renewed weakness in industrial consents is a concern, as this often leads activity in other sectors. Public sector work in the health and education sectors had been very strong, but there are emerging signs of a slowdown. With government finances under pressure, spending will be reduced. Farm sector consents are rising. This is consistent with improved rural profits, particularly in dairy, beef and sheep farming. There is clear evidence of a lift in farm spending on fertilisers and tractors; this should spread to more farm sector construction. Consents by region Building consents are falling across most regions, with only Auckland and Canterbury showing any meaningful gains (Figure 7). Consents rose slightly in the Hawke s Bay. Waikato and Otago, two resilient regions until recently, appear to be slowing sharply. An unusually large proportion of consents are alterations and additions in Canterbury. This may reflect fitting out old buildings for different purposes, however, this is not necessarily an accurate indicator of how quickly the rebuild is ramping up. 13

14 Figure 7 Annual growth in value of consents by region in the year to January 2012 Annual change, $m NORTHLAND -54 WAIKATO AUCKLAND BAY OF PLENTY GISBORNE MANAWATU/WANGANUI HAWKE S BAY NELSON & TASMAN -9 WEST COAST -11 MARLBOROUGH WELLINGTON CANTERBURY 8 SOUTHLAND OTAGO -95 Source: Statistics New Zealand, NZIER 14

15 TABLE 1 Value of consents by sector in the year to January 2012 Sector Annual value ($ million) Share of total (%) Annual change (%) Shops, restaurants and taverns Offices and administration buildings Education buildings Hospitals and nursing homes Factories and industrial buildings Social, cultural and religious buildings Storage buildings Farm buildings Hotels and motels Hostels and boarding houses Miscellaneous buildings Total 3, Source: Statistics New Zealand Building costs The Capital Goods Price Index for Non-Residential Buildings (CGPI-NRB) provides an official measure of cost movements in the sector. The CGPI- NRB excludes GST. The rate of increase in the CGPI-NRB can be used as an indicator of cost escalation. Note that this is a national average across all regions and building types. We therefore advise caution in applying the increase in the CGPI-NRB as an indicator of cost escalation for specific building projects. The Rider Levett Bucknall December 2011 Oceania Report provides local regional comment and tender price relativity between the main New Zealand and Australian centres. This publication is available at com or on request from any Rider Levett Bucknall office. Construction costs, as measured by the CGPI-NRB, are rising off their lows during the worst of the recession. Costs rose by 1% in 2011, a modest rise compared to history. NZIER s latest forecast of the annual percentage change in the CGPI-NRB is shown in Figure 8 and Table 2. Building costs will remain moderate over 2012, but gradually rise thereafter in line with recovering activity in the sector, which will be supplemented by Canterbury reconstruction. These construction cost forecasts are based on the assumption of a 10 year Canterbury rebuild. There are emerging pressures of labour and construction cost increases. But these are heavily concentrated in Canterbury; costs are low or falling in the rest of the country (Figure 9). Until there is a convincing recovery in construction across the country, rising costs in Canterbury will not spill over to other regions. 15

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17 Figure 8 Non-residential building cost escalation FORECAST Annual percentage change in the CGPI-NRB YEAR Source: Statistics New Zealand, NZIER forecast Figure 9 Construction costs by region Net % of firms raising prices, trend NET % OF FIRMS RAISING PRICES, TREND CHRISTCHURCH REST OF NZ YEAR Source: NZIER Quarterly Survey of Business Opinion 17

18 TABLE 2 Non-residential building cost index Notes: The current and forecast CGPI- NRB is a national average, which does not differentiate between regions or building types. We therefore advise caution in applying the increase in the CGPI-NRB as a measure of cost escalation for specific building projects. * These forecasts are based on an assumption of a 10 year rebuild in Canterbury Forecast* Year Quarter Index Quarterly change (%) Annual change (%) March June Sept Dec March June Sept Dec March June Sept Dec March June Sept DEC March June Sept Dec March June Sept Dec March June Sept Dec March June Sept Dec March Source: Statistics New Zealand, NZIER forecast 18

19 For further information please contact Grant Watkins or your nearest Rider Levett Bucknall office ASK RLB (NZ) New Zealand Auckland Christchurch Otago Palmerston North Tauranga Wellington

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