Auckland developers hardest hit by cost inflation

Auckland developers hardest hit by cost inflation

Auckland, May 5, 2017

Auckland commercial property developers are being hit the hardest by increasing construction costs and capacity constraints, according to a new market analysis.

Colliers International’s latest monthly New Zealand Research Report, released today, details the pressures on supply due to the continuing rise in costs for new residential and commercial developments.

Research Manager Leo Lee says developers and consultants have reported higher than indexed cost inflation on some projects, particularly in Auckland.

“The latest Capital Goods Price Index puts annual growth in commercial construction costs at 5.6 per cent – higher than the 26 year average, and a sharp increase over the previous quarter,” he says.

“Anecdotally, cost inflation has been higher than that. Developers and consultants have been reporting even greater cost inflation on specific projects, particularly in Auckland.

“Specialist sub-contractors in particular are driving cost inflation.”

Lee says some relief is likely as development finance becomes more difficult and expensive to secure.

“Interest rates have been edging up as banks pass on the costs of their overseas borrowing,” he says.

“The increasing cost of finance will likely lead to the deferment of some projects. We’re already seeing major contractors becoming cautious about the projects they commit to.

“The upside is that capacity pressures will ease, leading to a potential easing of cost inflation.”

Lee says NZIER has forecast non-residential construction cost inflation will peak at 7.4 per cent by September, before easing back to 4 per cent by the end of next year.

“Record low vacancy across the office, retail and industrial sectors will continue to stimulate construction activity, particularly in Auckland,” he says.

“We’ve already seen new non-residential building consents in Auckland reach a record high of $1.82 billion in March.”

ENDS

New_Zealand_Research_Report__May_2017.pdf

About Colliers International:

Colliers International Group Inc. is a global leader in commercial real estate services with 15,000 professionals operating from 396 offices in 68 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals’ Global Outsourcing for 10 consecutive years, more than any other real estate services firm.

Founded in Australia in 1976, Colliers International is the largest locally formed real estate services firm with professionals worldwide. Find out more at www.colliers.co.nz

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