Economic Outlook: The Current State of Construction

Rohrig recently sponsored and attended The Urban Developer’s annual Australian Property and Economic Outlook events, hosted across Sydney, Brisbane and Melbourne in February. We sponsored both the Sydney and Brisbane events, with each focusing on a region-specific economic outlook while still assessing the broader Australian economy.

Keynote speaker for the event, KMPG Australia Partner and Chief Economic, Dr Brendan Rynne, outlined the economic conditions impacting real estate in Australia with a particular focus on inflation. Dr Rynne, who offers more than 30 years’ experience as a property market analysis, explained that recent cash rate hikes were “fair warning” that the RBA will continue down this path of rate rises to curb inflation.

“It’s pretty clear (Reserve Bank governor Philip) Lowe knows that he’s not going to get another term and he’s going to go out with all guns firing,” Dr Rynne said at the Brisbane event. He based the prediction on a recent Reserve Bank of Australia statement:

The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy’s trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return to target and will do what is necessary to achieve that.

As many Australians are set to move to variable mortgage rates across the next year, Dr Rynne estimates $60 billion will be removed from the economy. Despite this, Dr Rynne confirmed that KPMG does not predict Australia will face a recession but says that it will ‘feel like one’, and he urged developers to hunker down.

“If you’ve got a good balance sheet … use this as an opportunity for land supply and stocking for the next cycle that comes through,” Dr Rynne said, before putting attendees’ minds at ease reminding them that, “it’s a cycle, the tough times ahead of us are not going to last forever.”

What does this mean for the construction industry?

While Brisbane and Sydney are experiencing different construction conditions, we remain positive about the state of the industry here at Rohrig. We believe that, despite the economic outlook, we are in a strong position to continue delivering exceptional client outcomes in both states.

Rohrig National Business Development Manager, John Demnar explains that while the economic climate remains uncertain, the construction sector is likely to remain busy for the foreseeable future.

“Whilst the overall economic outlook appears to be uncertain as the government and reserve bank work to get inflation under control, there are signs within the construction sector that would suggest that the market will remain generally busy for the medium term,” John said.

“With insight into both the QLD and NSW markets it is clearer now more than ever that the two markets are very different and tend to be running opposing cycles. Whilst the NSW market is still recovering from the COVID hangover, labour and materials seem to be generally available and productivity is strong within the marketplace which is yielding great value for clients.

“Further North in South East Queensland we are very much in the midst of one of the tightest labour markets we have experienced in recent history and with little respite ahead given the number of large-scale projects finishing and commencing, along with the significant amount of infrastructure work yet to be completed or started.”

Despite distinct differences and unique challenges within the Sydney and Brisbane markets, John says that with the right approach successful projects are possible despite the unknown economic conditions.

“We believe that although we are in uncharted territory, the fundamentals remain the same and for us to adapt as a sector to a more sustainable environment we need to be delivering projects in a different way to try and get the best outcome for clients,” John said.

For those looking to build, but perhaps putting it off, John recommends engaging with your project team to understand what options there are to progress your project rather than waiting for things to improve. “This will be the new norm for a while, and it may get worse before it gets better,” John said.

“Going forward we believe stronger collaboration between clients, builders and designers is the only way to navigate the market and help alleviate some of the ongoing pressures on all stakeholders within the space.”