Rohrig Uncovers Future Solutions for Construction Industry

We recently hosted a live panel discussion at Brisbane’s Howard Smith Wharves, which discussed the current economic state of the construction industry.

Valued partners from Brisbane’s property, construction and development industries attended, with an overwhelming turnout in support of industry progression through Brisbane’s difficult economic conditions. Of course, it was also the perfect opportunity to catch up and have a few drinks with clients, partners and the wider industry as we celebrated success through uncertain times.

The panel discussion, hosted by News Corp Queensland Real Estate News Editor, Elizabeth Tilley, featured the following industry experts from a range of sectors:

• Grant Murphy – Senior Executive, NAB Business
• Matt Lancashire – Principal, Ray White New Farm
• Tom Low – Director, TLPC
• David Vokes – National Operations Manager, Rohrig Group

Construction Industry Outlook

Rohrig’s own David Vokes kicked the panel discussion off, explaining that Brisbane’s construction market is more volatile than he’s seen in 33 years in the building industry. Material price rises have been the biggest issue in the last two years, with an average increase of between 0.8 and 1% per month, but the big issue now is labour constraints that are far more difficult to predict than material costs.

Through the worst of it we did our best to try and price rises and find suitable alternatives where necessary, but labour constraints are far trickier to model. David explained that this is because its a supply and demand driven issue, heavily affected by the big jobs in town like Queen’s Wharf. While some trades have stabilised, or remained steady in their supply, others have skyrocketed.

“Some trades have gone crazy while others have been steady. We’ve also seen the fuel prices affect trades like bulk earthworks – overnight it cost an extra 15% to dig a hole,” David confirmed.

On the commercial side, TPLC Director Tom Low echoed these sentiments as he told attendees that it’s busy in every sector, making this ‘the new normal’.

“The whole market has changed, it’s completely changed in terms of how we are going about securing prices, builders, the metrics within the commercial deals are shifting with the interest rates going up,” Tom said.

What are the banks saying?

NAB Business Senior Executive Grant Murphy was succinct in his summary of Brisbane’s market conditions, off the back of nine consecutive rate rises. He explained that conditions are highly volatile, but that the Reserve Bank did the right thing.

“The cost of funds is now more elevated than the GFC (global financial crisis). It’s at the most expensive point it’s ever been in Australia and the journey hasn’t finished,” Grant said.

Grant explained that ‘a perfect storm’ is impacting the feasibility of developments, with a unique supply driven issue making matters worse. Rapidly elevated building costs coupled with the increased finance cost, changes the feasibility for financiers.

“We have to build a contingency to make sure we can fund the interest until the development is completed. When you throw that all together it’s making a lot of ‘feasos’ not work and so it’s putting pressure on supply, because supply is coming out of the market,” Grant continued.

Real estate a winning game

Brisbane real estate icon Matt Lancashire told attendees that he’s seeing a large migration of wealth into South East Queensland. He explained that Australian expats are returning to Brisbane, leaving places like Hong Kong, choosing the sunshine state for its lower costs.

Brisbane is attracting buyers, drawing them away from Sydney and Melbourne, as it continues to evolve from a ‘big country town’ into a global city. Matt told the audience that despite interest rate rises, the real estate market is stronger than ever.

“What’s really bizarre is that interest rates haven’t affected the top end of town (over $5m). I haven’t seen a finance clause in about two years. The growth has been phenomenal and I don’t know how sustainable it is, but we aren’t seeing any sign of a slowdown at the moment,” he stated.

Success now and into the future

The panel agreed in their proposed solution to the tough economic conditions, now and into the future, concurring that it’s about choosing a trusted builder early on and moving ahead without hesitation.

“We used to go out to tender and try and see what the market says the price is. It’s hard to get engagement from builders at this point in the cycle, so we’re picking one particular builder and we’re working with them to achieve the result. A complete change to how we used to do it,” said Tom.

“We are saying to clients, ‘if you don’t go now, the construction prices are just going to go up’. If you’ve got the ability to go now, that’s what we’re encouraging people to do,” he said.

The banks are on the same page, too, with Grant pointing out that reputability of a builder goes a long way in managing risk and securing finance.

“It comes back to that point of picking a builder who does have that reputation and relationships, particularly in the Brisbane and Gold Coast markets, who are proven to be delivering projects,” Grant said.

“Engage your builder early and pick a builder who has a good relationship with the financiers. That’s the key because banks will be a lot more relaxed dealing with a counter party risk like that,” he contiued.

Rohrig are a prime example of a reputable builder that has the right contacts and reputation to navigate the market conditions and has proven themselves as a trusted partner when looking for a building contractor.

“Our funnel is as good as I’ve ever seen it. For us, our enemy is hesitation. On jobs now, we need to act decisively and quickly, get subbies signed up, get materials ordered and if you wait you just don’t know what that’s going to look like around the corner,” David said.

Our wonderful host Elizabeth put it well in summarising the panel discussion. “I think the message summing up is to engage a builder as early as possible, that seems to be the crucial thing, because I think things aren’t going to get better anytime soon so this is the new normal,” she said.

Drinks flowed and so did ideas for the future, as we shared a wonderful night of catch-ups and celebrations with customers, clients and partners. We are as passionate about our people as we are about the construction industry, which is why events like this are so important to us.