CHALLENGING TIMES
2024 has been one of the most challenging across the construction sector and the country. Residential consents are down 20% on last year to date, sitting at 33,677. The annual value of non-residential work consented was $9.1 billion, down 6.4% from the previous year ended September 2023. I feel the real picture is likely even worse than that, as not all projects consented actually go ahead and start soon after. There’s also not a lot of data around to match consent issue with code of compliance issue, which would give a clearer picture of the true level of activity.
Things don’t appear to be looking much better for the commercial sector either, with one commentator predicting far fewer commercial buildings are likely to be built over the next few years. The number of office buildings consented slumped to a 32-year low in the third quarter (Q3) this year, while the number of factories and industrial buildings being consented is at a record low. Going against this trend, there was a jump in the number of new retail premises consented in Q3 of this year, the highest number since Q2 2022.
From a non-residential perspective we’ve found the current environment – with the cost of construction and finance so high – makes it very difficult to get projects to financially stack up. From January 2021 to December 2023, construction inflation was 38.6%. This was unprecedented growth, and unfortunately, we’re unlikely to see a retraction in that rate going forward. It looks like this is the ‘new norm’.
On a more positive note, we’re seeing that with the recent easing of wholesale interest rates by the Reserve Bank, clients we’ve been working with for a while whose projects went into ‘hibernation’, have woken back up and are keen to talk again. We’re encouraging our clients to “think slow, act fast”. By this, I mean using more time to plan, cost, consent and get ‘shovel ready’ and in a position to push ‘go” as soon as they’re ready. This allows you to move fast and take full advantage when conditions are right.
With OCR announcements to come either side of Christmas, we’re hoping this will give confidence to the investor community “that there is no better time to build than today!”.
