Mixed Outlook For New Zealand’s Construction And Infrastructure Sector

RICS New Zealand Construction and Infrastructure Survey, Q1 2020

• COVID-19 outbreak and subsequent lockdowns lead to a contraction in activity
• Largest firms expect to be buoyed by infrastructure workloads; reductions in headcount expected
• Costs putting pressure on margins; deflationary risks emerging in South Island

New Zealand’s construction and infrastructure sector has contracted significantly following the implementation of a blanket lockdown to contain COVID-19, the Royal Institution of Chartered Surveyors (RICS) Q1 2020 New Zealand Construction and Infrastructure Survey has found.

Respondents to the quarterly survey on the trends in the New Zealand construction and infrastructure markets have signalled the sector’s momentum and optimism at the end of 2019 has all but dissipated over the past three months, with a significant pullback in market conditions leading to predictions of further job losses and in construction activity.

RICS Australasia Managing Director, Chris Nicholl, said the survey has found the nationwide lockdown which came into effect on March 25 has resulted in a drastic reduction in the levels of private commercial, private industrial and public and private residential works.

“The immediate impacts of COVID-19 on New Zealand’s $60 billion a year construction and infrastructure sector have been significant,” Mr Nicholl said.

“The nationwide lockdown ground the sector to a halt and amplified the already existing difficulties in sourcing labour and materials for construction.

“In what has previously been a tale of two Islands in terms of the strength of market activity, this survey has found a convergence in conditions in the North and South Islands as activity deteriorates right across the country.

“As the market looks to what lies ahead, professionals across New Zealand are reporting they expect construction costs to rise faster than tenders over the next twelve months, which provides a grim outlook for profit margins.

“This has led to genuine concern of a real risk of deflation in the South Island in particular, as some costs and tenders are declining. We will also be closely watching what the potential long-term border closures could mean for the country’s ongoing skills shortage.”

Mr Nicholl said expectations the Government is set to expand its $12 billion New Zealand Upgrade Programme in its May 14 Budget is a positive step towards reactivating the infrastructure sector.

“Government infrastructure spending is certainly not the silver bullet to New Zealand’s economic recovery, but it will play an extremely important role,” Mr Nicholl said.

“Infrastructure investment via initiatives such as the New Zealand Upgrade Programme will occupy a pivotal role in the country’s post-pandemic economic recovery.

“But we also need better alignment of private and public sector interests. Greater collaboration will deliver improved outcomes for investors and realise the socio-economic benefits that new infrastructure brings.”

RICS Australasia Senior Economist, RICS Sean Ellison, said the survey found small to medium-sized firms remain less optimistic about the road ahead than the nation’s largest firms.

“Respondents from all firms except for the largest (those with more than 250 employees) expect both infrastructure and non-infrastructure workloads to decline over the next twelve months,” Mr Ellison said.

“While the outlook largely depends on the success of the easing of lockdown restrictions and the government’s planned stimulus measures, at this point in time headcounts are largely expected to be cut over the next year.”

The RICS Q1 2020 New Zealand Construction and Infrastructure Survey can be accessed here.

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