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