The outlook for New Zealand’s building and infrastructure industry is defined by a tale of two very different cities; the powerhouse that is Auckland, and Christchurch, a city facing rebuild fatigue five years on.
Auckland has seen a rise in optimism, while the Christchurch market shows a steady decline in workload expectations, according to AECOM’s six-monthly nationwide construction market Sentiment Survey released today.
The survey highlights a substantial softening in the Christchurch infrastructure sector, down 10 percentage points to 29 percent of respondents expecting to see an increase in workload. The continued decline in optimism, down nearly 30 percentage points in a year, reflects recognition that much of the rebuild infrastructure activity is complete and the programme of work is now changing gear.
Expectations in the Christchurch buildings market have also moderated; 58 percent of Sentiment respondents expect growth, down from 80 percent in May. This is contextualised by the development of the Transition Recovery Plan, now underway, as the city sees a shift in decision making functions and responsibility to local leadership, with ongoing co-operation between central and local Government over a period of five years, to ensure momentum is maintained.
In Auckland, the housing market, amongst other factors, continues to drive optimism across the industry. Despite attempts to cool the market, including lending restrictions and new requirements for foreign investors, the average value increases remain significant with the region’s median house price now above $900,000.
Meanwhile, 61 percent of respondents expect to see growth in Auckland infrastructure projects over the next three years, up from 55 percent six months ago. Notably the Energy sector has also seen a leap in confidence for anticipated workflow in Auckland, up from 13 to 40 percent in the latest survey.
John Bridgman, AECOM Managing Director – New Zealand, commented: “Auckland is now host to a wealth of human and social capital, but that doesn’t come without its challenges. The greater coordination evident between central and local Government will be essential to support the strong economic impact now being delivered in Auckland.”
Sector confidence is framed by nationwide industry challenges. Skills and materials shortages remain the biggest risk; 40 percent of respondents see addressing the supply chain shortage of skilled labour and risk of materials shortages as their biggest challenges, along with retention and quality of employees. Business confidence also stands out as a key challenge, 17 percent of respondents see local market conditions as an area of concern.
“Business confidence is key in a market facing downward pressures like the slowing of the Chinese economy. As an industry, the strength of our relationships is important as we face these challenges. Deep and sustainable alliances and connections form the foundation to accelerate development and provide more complete solutions in these environments,” John Bridgman said.
In the latest survey, big data and smart technology have emerged as key considerations as industry players assess how advances will affect the way they do business. Most respondents (66 percent) believe there will be a substantial change to how business operates within 2-6 years. However, divergent viewpoints are apparent; assessments range from significant change and industry disruption, to its just hype and change won’t occur quickly as anticipated.
Focus on Auckland – Super City scorecard
Five years since the amalgamation of the Super City, Sentiment Survey respondents ranked the Council’s performance in terms provision of public services highest, with almost 90 percent rating it ‘average’, ‘well’ or ‘excellent’. Infrastructure development also rates highly, with more than 70 percent scoring the city’s performance ‘average’ or above; perhaps recognition that the move to becoming a Super City has been a good one but the city is still striving for ‘excellence’.
While strong performance is recognised in some areas, one third of all respondents rate the Council’s overall performance below average; Consenting, City Planning, Financial Management and Leadership identified as areas for improvement. Despite some challenges, Auckland continues to rate highly on international liveability indexes, in line with the Council’s vision to be the world’s most liveable city.
Spotlight on Canterbury – need for a vision
While previous Sentiment survey findings have highlighted the need for a focus on delivery, the discussion has now moved to sense of ‘rebuild fatigue’ acknowledged by respondents, with some calling for the ‘critical mass’ to continue to build momentum and timeliness; an understandable viewpoint given the considerable effort taken to transform Christchurch.
While the survey findings indicate sentiment has moderated for the region it remains strong and more in line with a long-term outlook. There is a slowing of residential construction as the rebuild moves into the commercial phase. Public and private funding and increasing costs are the top factors cited as slowing the pace of the rebuild, indicating that sources of funding remains an ongoing challenge for the region.
However, concerns around cost escalation are moderating; the number of respondents expecting price hikes in labour has dropped 25 percentage points, to 69 percent, and importantly more than 70 percent of those anticipating increases expect them to be less than 5 percent.
“Quality and momentum of future development in the central city is essential to the economic, social and cultural prosperity of the region. But in many ways, the value of a development is the way it is used and its likeability. The big challenge lies in how we encourage residents to return to the CBD, a shift necessary to create long-term vibrancy for Christchurch,” said Shaun Hubbard, AECOM Area Manager – South Island.
Summary of key market indicators:
- Infrastructure optimism is stable at 37 percent of respondents expecting more work, compared to 36 percent six months ago
- Auckland infrastructure is on an upward trend; 61 percent expect growth over the next three years, up from 55 percent previously
- Christchurch buildings market continues to moderate, 58 percent expect increased investment in the next three years, down from 80 percent
- Mixed-use development has a positive outlook; 47 percent anticipate growth, up from 35 percent six months ago
- Steep rise in numbers of respondents who see local business confidence as a significant industry challenge, up from 2 percent six months ago, to 17 percent
- 85 percent of industry respondents indicate they now consider ‘whole-of-life’ costs in capital investment decisions
- 66 percent expect big data and smart technology to be a driver for change in business over the next 2-6 years
- 63 percent feel significant consideration is given to natural disasters in investment planning, compared to 36 percent 12 months ago.
The full report can be viewed at: live-aecom.pantheonsite.io/nzsentiment
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