THE worst may be over for construction costs escalation, according to Napier & Blakeley, and while material cost increases still exist, focus has shifted to a premium on labour costs.
The construction market over the past 12 months has again been a challenging one, according to Napier & Blakeley’s latest Construction Costs Datacards, and the firm still expects upward pressure on costs to continue in the short to medium-term.
“However, in regard to the recent significant price increases in some material prices, whilst we believe the worst is over, we still expect some upward pressure on costs to continue, with the market taking some time to assess that the risk and rate of significant future price increases are over or at least reduced,” director Craig Smith said.
Napier & Blakeley’s current cost escalation forecast for the 2024 financial year is 5% to 8% for residential construction, relating to timber framed buildings, and 5% to 7% for commercial construction – excepting Western Australia and Queensland, where it is tipping cost escalation to be in the order of 6% to 8% for residential construction and 7% to 9% for commercial construction.
“The construction market over the past 12 months has again been a challenging one with the market experiencing strong cost increases in the second half 2022. In the first half of 2023, the material cost increases have calmed however they still exist with a premium on labour costs now more of the focus,” Smith added.
Contractors continue to include cost escalation in their tender, the report found. Shipping costs are reducing, while reinforcement and steel prices are steadying, however building services works, brickwork, concrete, precast concrete, precast concrete and plasterboard prices are increasing.
Some sub-contractors are supplying labour-only quotations to contractors, with the contractor therefore required to purchase materials and absorb the risk of the cost increases of materials, while there are general inflationary prices on the cost of labour.
The costs data have been sourced from around 600 projects that Napier & Blakeley advised on last year.
Residential construction
Single Sydney homes up to 250 sqm cost $1,500 to $2,400 per sqm to build, according to Napier & Blakeley’s Construction Costs Datacards, compared to Melbourne and Adelaide’s narrower $1,800 to $2,100 per sqm.
For south east Queensland, the cost is $1,220 to $1,875 per sqm, while in Perth’s it’s $1,725 to $2,050.
A medium-standard two-storey townhouse costs $2,200 to $3,000 per sqm to build in Sydney. In Melbourne it costs $2,100 to $2,525. Adelaide and Perth builds both come in at $2,000 to $2,500 per sqm, and south east Queensland $1,450 to $2,375.
Three-storey apartments built to a medium standard cost $2,350 to $3,250 per sqm, while in Melbourne it will cost between $2,800 and $3,250. South east Queensland builds will cost $2,275 to $3,075 per sqm, just a clip above that in Adelaide, and from $2,650 to $3,125 per sqm in Perth.
Office construction
A-grade 20-storey-plus offices cost $4,800 to $6,300 per sqm to build in Sydney, well above its peers. In south east Queensland it’s $4,100 to $5,400, in Melbourne it’s $3,700 to $4,400, Adelaide is $3,400 to $3,950, while in Perth is can range from $3,875 to $4,740 per sqm.
Medium-grade offices up to 20 storeys range from $3,700 to $4,800 per sqm in Sydney to $3,000 to $3,600 in Adelaide.
Retail construction
Melbourne, Adelaide and Sydney are the most expensive places to construct the shell of a suburban specialty shop, at $1,800 to $2,300 per sqm for Melbourne, $1,700 to $2,100 for Adelaide respectively, and between $1,550 and $2,450 in Sydney. In Perth it’s $1,620 to $2,000, while in south east Queensland it’s $1,325 to $1,825.
A medium-standard suburban enclosed mall in Sydney costs $2,350 to $3,400 per sqm, while Melbourne is $2,500 to $3,000. Adelaide is $2,400 to $2,750, Perth is just a tick under, and south east Queensland is $2,175 to $3,375.
Industrial construction
To build a medium-standard precast wall warehouse of up to 10 metres high and 3,000 sqm, with no sprinklers, it would cost $1,070 to $1,475 per sqm in Sydney, and $1,050 to $1,350 in Perth. In Melbourne, that would come in at a much lower $825 to $990, while south east Queensland would could show a slightly higher ceiling of $1,075. Adelaide is a shade lower.
Hotel construction
A multi-storey three-star hotel in Sydney, with a restaurant, public areas, and air conditioning, would cost $3,500 to $6,300 per sqm to construct, with price tag of $41,000 to $75,000 to fit out. While multi-storey five-star hotel with the same features would cost $5,400 to $7,600 per sqm to build, a fit-out would range from $70,000 up to $130,000 per sqm.
Download the N&B Construction Costs Datacards sector-by-sector and city-by-city for:
Building product price inflation easing
Over the June quarter, the cost of building materials lifted a further 0.6%, representing the smallest quarterly increase since the close of 2020. However, costs are still up 7.4% over the last 12 months.
According to CoreLogic’s Cordell Construction Cost Index, construction costs grew by 0.7% over the quarter, significantly under the decade average of 1.2%, and after the first quarter returned a growth rate of 0.9%. Annually, the Index was up by 8.4%, an improvement on the previous year’s 11.9%.
According to Turner & Townsend’s latest International Construction Market Survey, Sydney has overtaken Perth as the most expensive Australia city to build in, with average costs of US$2,950 per sqm compared to Perth’s US$2,633. Brisbane was third with US$2,561, pipping Melbourne with US$2,540, with Adelaide coming in fifth at US$2,382.
Construction inflation in Australia is expected to remain elevated in 2023 but lower than the previous two years, with average forecasts of 4%.
