Throughout the next two years in NSW and ACT, the construction industry is expected to boom, impacting greatly on resources across both states and also nationally. As this article will discuss, BMT & ASSOC are planning for these escalations by researching trends and holding discussions with some of the country’s largest construction and development companies. This up-to-date information will assist BMT & ASSOC in providing sound cost planning advice to the financier.

BMT & ASSOC have recently held discussions with some of Australia’s largest construction firms, examining where the industry is headed over the next two years. It is believed that there will be a large increase in construction activity in NSW and ACT - so much so, that it is expected to have a dramatic effect on the industry. As an example, one such construction company is tendering on over 30 individual jobs that have a projected construction cost of over $50 million each between Sydney and Canberra. Three of these jobs have a projected construction cost of over $200 million each, and one job has a projected construction cost of over $500 million. Half of these are government projects. Construction tenders are also being sought for four major hospitals throughout NSW and are not considered in the preceding figures. This huge influx of construction work over the next 12 to 24 months in NSW and ACT will result in shortages of skilled labour, materials and consultants across both states. This increased construction work in NSW and ACT will also draw labour and materials from other states. As a result of these shortages, cost escalations will occur across the industry, impacting everyone involved in the development process – financiers, developers, contractors, and suppliers. It is expected that construction costs will increase between 4-6% in NSW and 6-8% in ACT over the next two years. It is worth noting that the impact of this increase in construction activity will ultimately impact the larger construction projects underway. It will, however, have a flow on effect for smaller projects – impacting labour and materials, with both being directed towards the bigger sites.

An Example – Perth, WA

Currently, Perth has booming mining and construction industries. This has resulted in a major shortage of skilled labour across the state, and in turn has caused labour costs to rise. In addition, material costs are also on the rise, and escalating petrol prices are adding to the cost of construction, especially where construction sites are out of metropolitan areas.

For example, one specific commercial development in Perth is costing approximately $4,000 per square metre - a significant increase, and possibly a sign of things to come in NSW and ACT.

The Effect on the Financier

In order to accurately facilitate the loan process into the future, the financier needs to be conscious of cost escalations in labour and materials. If the anticipated escalations come to fruition, financiers will need to consider the rising costs when approving loans and progress payments. To be aware of these cost escalations the financier needs up-todate information to determine the cost of a development in order to make informed decisions regarding loans and progress payments. This information is vital in ensuring that the development progresses on budget and that unexpected costs are kept to a minimum. If the financier is not well informed about these possible cost escalations, it may result in the development budget being exceeded – causing problems with the loan and possibly the loan repayments.

BMT & ASSOC – Preparing for the Future

BMT & ASSOC continually test and research the market to remain aware of any labour and material cost fluctuations in the construction industry. We are constantly liaising with large construction companies and developers to remain ahead of the trends, so that when cost escalations occur in the industry, we are duly prepared. BMT & ASSOC can help financiers to accurately determine the total cost of a development, including labour and material rates, through our project auditing service. We provide objective appraisals of the developer’s estimate, considering escalations, and then continually monitor the project, checking it proceeds on time and on budget through our monthly progress payment reports.

BMT & ASSOC are well informed in the industry, and therefore are able to provide financiers with sound, accurate cost planning advice.

Recently Completed Projects

Loation: Central Coast, NSW

Project type: 113 residential units
Approx. Construction Cost Per Square Metre: $1,350/m²

cation: North Sydney, NSW

Project type: 23 unit mixed use development
Approx. Construction Cost Per Square Metre: $1,700/m²

cation: Sydney South, NSW

Project type: 3 commercial units
Approx. Construction Cost Per Square Metre: $860/m²

Location: Sydney, NSW

Project type: Commercial development
Approx. Construction Cost Per Square Metre: $1,500/m²

Location: Central Coast, NSW

Project type: 7 residential units
Approx. Construction Cost Per Square Metre: $1,200/m²

Location: North West Sydney, NSW

Project type: 16 residential units
Approx. Construction Cost Per Square Metre: $1,600/m²

Location: Sydney South, NSW

Project type: 9 residential units
Approx. Construction Cost Per Square Metre: $1,450/m²

Disclaimer: This information should be read subject to the following conditions:

• Information is published as a matter of interest only and is not intended to be relied upon by readers. In any
situations which may be similar to matters herein readers should exercise and rely upon their own judgement.
• Neither BMT & ASSOC Pty Ltd nor any of its officers or employees bear any responsibility for any error in the
material published in this publication or in any previous publication, or for any damage or loss resulting from any reliance on any material published in this publication or in any previous publication.
• This newsletter is issued as a helpful guide and is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is undertaken.