Property and Construction Cost Consultancy Advisory Services

Transcription

1 Property and Construction Cost Consultancy Advisory Services Presented by Roger Hogg Head of Global Research and Development Melbourne ACIF Briefing 28 September 2011

2 Construction Analysis Where are we Now and where are we Going?

3 Introduction Global Markets Europe US China Australian Construction Market Residential Non-Residential Public vs Private activity State Construction Markets Adelaide Brisbane Canberra Melbourne Perth Sydney

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5 Global Markets Europe Liquidity Crisis European banks overexposed to sovereign debt problems Vicious cycle for EU Banks Market nervousness; share price falls; restricted supply of short-term funding from US money markets. European Construction looked to have stabilised 1st Half 2011 However further softening likely: Basel III tighter lending regulations; lack of access to global money markets; general market volatility. P.I.G.S. (Portugal, Ireland, Greece, Spain) European Construction GDP (Mn EUR) 720, , , , , , ,000 Construction Sector Barometer - EMEA 100% 90% 80% 70% 60% 50% 40% 30% 20% Source: ABS Who will be next? Blue = BAD 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

6 Global Markets US Recent downgrade of US credit rating Political stalemate over debt ceiling brinkmanship Markets question strength and duration of US recovery Unemployment remains historically high over 9% Residential demand has failed to recover from subprime collapse and GFC Demand for new homes still extremely weak Foreclosure pipeline still high US Construction GDP (Mn USD) 700, , , , , , % Construction Sector Barometer - Americas 90% Source: ABS 80% Unemployment, foreclosures, falling sales delaying any rebound Depriving economy of strength and the catalyst (construction) for early growth seen in past recoveries 70% 60% 50% 40% 30% 20% 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

7 Global Markets China Shining light amidst global economic turmoil GDP set to grow 8.8% for 2011; 7.8% for 2012 Slower but persistently strong growth Inflation remains key concern Up to 6.5% in July but back to 6.2% in August Economic adjustment since the GFC 2007, Net Exports represented 18% of its 14% GDP growth 1H 2011, Net Exports represented -0.7% of its 9.6% GDP growth Illustrates the economy is shifting from export-based to being driven by domestic consumption and Fixed Asset Investment (FAI) This strong 23-25% FAI growth is bullish for commodities demand Increased construction and industry activity gobble resources Strong catalyst for Australian economic prospects Chinese Construction GDP (10 Mn CNY) 200, , ,000 50,000 0 Source: ABS Construction Sector Barometer - Asia 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Houses Apartments Offices Industrial Retail Hotel Civil Trough Zone Mid Zone Peak Zone Source: RLB

8 Australian Construction Overview Construction Work Done in 2010 bn Residential $48.3 Non-Residential $37.7 Engineering $79.5 TOTAL $165.5bn Source: RLB, ABS

9 Australian Construction Residential ($48.3bn work done in 2010) Housing Volume of work done fell 3.1% FY sparked by GFC turmoil Gov. stimulus (1 st Home Owners Grants) boosted levels in FY but fell 4.1% in FY % lower than pre-gfc levels Apartments/other Residential Work Done Continued growth of 6.7% in volume of work done for FY followed by a slight pull back in FY Significant jump of 16.2% in FY Work Commenced A more volatile and market reactive indicator that strongly correlates with market sentiments FY saw a huge fall of 24.4% in volume of commencements Equally strong rebound of 27.3% in FY on back of growing positive market sentiment 30% 20% 10% 0% -10% -20% -30% Other new residential buildings (Apartments) -2.6% 16.4% Sep 07 - June 08 (FY ) Pre GFC 6.7% -24.4% Sep 08 - June 09 (FY ) GFC -0.4% 27.3% Sep 09 - June 10 (FY ) 16.2% Work done YoY % change Work commenced YoY % change Sep 10 - June 11 (FY ) Source: RLB, ABS

10 Australian Construction Non-Residential ($37.7bn work done in 2010) Commercial Construction Value of Work Done declined 47% over 2009 after peaking in late 2008 before GFC 2010 saw a 30% recovery which has again been almost completely eroded over 1 st half 2011 Industrial Also trading at historically high levels at GFC and declined 49% to early 2010 Recovery took place in 2010 before falling over 1 st half 2011 to 46.3% below 2008 highs Despite weakness within privately dominated sectors, Non-residential construction in sectors targeted by Federal Gov. stimulus have performed markedly different. (particularly education and Health)

11 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Mar- 09 Jun- 09 Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep- 10 Dec- 10 Mar- 11 Australian Construction Private vs Public Activity Post GFC ($Mn) Work done (current value) by sector Non-residential Work Done by sector indicates the significant contribution public-funded construction has had post-gfc BER package in Education sector Activity winding down 10,000 8,000 6,000 4,000 2,000 0 Industrial Retail Offices Education Health Stark difference in Public/Private market contributions to volumes of Work Done pre-gfc and post-gfc Overall volumes falling with Private sector yet to pick up slack as public spending winds down ($Mn) 12,000 10,000 8,000 6,000 4,000 2,000 0 GFC Source: RLB, ABS Volume of work done (Non-residential buildings) Public Private GFC Source: RLB, ABS

12 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Current situation in Victoria Volume of construction work done grew steadily during the GFC ($Mn) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 VIC Construction volume (Dec 1999 = 100) VIC Construction volume

13 Current situation in Victoria Private non-residential building in Victoria has been hit hard by the GFC - The June 2011 quarter volume of private non-residential building work done was 43% below the June 2008 pre-gfc level Private investment remains relatively slow with only limited projects proceeding at present Residential market remained strong during the GFC Value of work done for apartments has doubled since 2008

14 Short term outlook The office sector is expected to rise as vacancy rates remain the lowest among other states and territories Number of mid-sized apartment projects undergoing feasibility Softening demand for other residential buildings but building costs remaining high - potential for margin compression over the near-term should these trends continue Mixed market sentiment in building sector High engineering spend 2 key projects: $6bn Loy Yang Coldry plant project and Monash Energy Coal Gasification and Liquids $2bn

15 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Construction Industry Employment Generally quite strong with minimal unemployment Number of persons employed in construction industry is currently 20% above its pre-gfc levels The new Enterprise Bargaining Agreement will place further upward pressure on prices (approx 27% over 4 years = 6.2% p.a.). ('000) VIC Construction employment (Nov 1999 = 100) VIC Construction employment

16 Consultants Workload - Very mixed some still busy and growing some very quiet and shedding staff - Government stimulus fading away - Increased number of smaller scale jobs rather than major projects

17 Overall Industry Workload in Victoria Steady increase in workload beyond Work & Costs stabilise due to the completion of BER projects Work & Costs increase Backlog of deferred work Work & Costs increase - Backlog of deferred work Quarter-on-Quarter and % Trends continue to rise, with strong residential and non-residential building sectors, despite the completion of large infrastructure projects demographic drivers

18 Rider Levett Bucknall Tender Price Forecasts - Large ranges in tender pricing continue to exist as a result of imbalances Melbourne +2.75% +3.5% +4.0% +4.0% Underlying increases: Materials approx 3-4% p.a. Labour approx 6.2% p.a. Overall Approx 5% p.a. Possibly offset by productivity gains, margin reduction and introduced efficiencies

19 Rider Levett Bucknall Tender Price Forecasts - Additional Issue Introduction of Carbon Pricing Shortage of information at present Current estimate 1% to 2% Effect possibly seriously diluted by subsidies Impact on a very competitive marketplace for Construction Works.

20 - Final Key issues In Overview Future 12 months possible margin compression, possible lack of work limited public work dependent on contractor s own circumstances variable, patchy spreads on tenders occasional bolter Industrial some, but very tenant-led little speculative. Residential very dependent on finance and pre-commitment. JVs sought; bottlenecks Values issue for pre-commitment; price-points concern Commercial as needs, tenant-driven, little speculative; some major projects around we re in three at present. Some clients going direct to contractors to negotiate

21 Thank you Presented by Roger Hogg Head of Global R&D Rider Levett Bucknall Level 13, 380 St. Kilda Road Melbourne VIC 3004 p e roger.hogg@au.rlb.com w app rlb.com/app WebApp