The Cost of Construction Trends Over 22 Years

The Cost of Construction
Presented by
Alastair McMichael
Rider Levett Bucknall

RLB Rider Levett Bucknall
• Rider Hunt - Australia & New Zealand

• Levett & Bailey - Hong Kong & China
• Rider Hunt Levett & Bailey - Singapore & USA
• Bucknall Austin - UK & Europe
= Rider Levett Bucknall - Worldwide

• Review and update of data presented last

year
• Comment on current market pressures

and outlook
• International Comparisons
RLB “basket of goods” concept to produce a

Tender Price Index:
- weighted average of trade rates, by pricing

two “model” buildings
- “A” grade office development
- multi-storey apartment building

Movement of Tender Price Index

from 1986 to 2008 (22 years)
and comparison with CPI
Indexed Relative Movement - Sydney CPI
260
250
240
230
220
210
200
190
180
170
Index
160
150
140
130 Sydney CPI Index
120
110 TPI Sydney
100
90 3.5% Compounding
80
70
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
M id Year
Indexed Relative Movement - Melbourne CPI
260
250
240
230
220
210
200
190
180
170
Index
160
150
140
130
Melbourne CPI Index
120
110 TPI Melbourne
100
90 3.5% Compounding
80
70
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
M id Year
Indexed Relative Movement - Perth CPI
260
250
240
230
220
210
200
190
180
170
Index
160
150
140
130
Perth CPI Index
120
110 TPI Perth
100
90 3.5% Compounding
80
70
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
M id Year
Indexed Relative Movement - Brisbane CPI
260
250
240
230
220
210
200
190
180
170
Index
160
150
140
130
120 Brisbane CPI Index
110
TPI Brisbane
100
90 3.5% Compounding
80
70
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
M id Year
Indexed Relative Movement - Tender Price Indexation
260
250
240 TPI Perth
230
TPI Sydney
220
TPI Melbourne
210
200 TPI Brisbane
190
3.5% Compounding
180
170 National Average CPI
Index
160
150
140
130
120
110
100
90
80
70
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
M id Year
Analysis of increased volume

of construction activity
from 1986 to 2008 (22 years)
Annual Volume Building Work Completed
600
550
NSW
500
VIC
450
WA
400 QLD
350
Index
300
250
200
150
100
50
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
M id Year
We’ve seen “where we’ve been”

but ….
“where are we going”?
Crystal ball time…..!

Indexed Relative Movement - Smoothed Tender Price Indexation
300
280
TPI Sydney
260
National Average CPI

240
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
300
280
TPI Melbourne
260

240
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
300
280
TPI Perth
260

240
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
300
280
TPI Brisbane
260

240
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
300
280 National Average CPI
260 TPI Auckland
Auckland Forecast
240
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
300
TPI Sydney
280
TPI Melbourne
260
TPI Perth
240 TPI Brisbane
Auckland
220
Index
200
180
160
140
120
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M id Year
International comparisons
New York 154 Singapore 122 Portland 100
London 151 Seattle 121 Dubai 99
Honolulu 141 Hong Kong 115 Orlando 99
San Francisco 140 Sydney 110 Auckland 99
Manchester 139 Macau 110 Denver 98
Birmingham 138 Adelaide 109 Las Vegas 97
Bristol 135 Brisbane 109 Christchurch 92
Boston 135 Melbourne 105 Beijing 80
Washington D.C. 131 Canberra 104 Shanghai 74
Perth 129 Wellington 102 Guangzhou 69
Darwin 123 Phoenix 101 Shenzhen 69
Los Angeles 123

Conflicting industry pressures
Inflationary pressures:
Some Global - Rising oil prices

- Second “surge” in steel
- International credit squeeze
Some National - High interest rates

- Wages growth
(particularly in resource rich states)
Some Local - Economic growth

- Skilled labour shortage
- Gas supply crisis
Signs that it can’t go on:
- Flat or falling residential prices

- Flattening rental rates (but at much higher levels)
- Softening yields
- Emerging “dual” market

The Cost of Construction Trends Over 22 Years

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The Cost of Construction

Rider Levett Bucknall

• Rider Hunt - Australia & New Zealand

= Rider Levett Bucknall - Worldwide

• Review and update of data presented last

• Comment on current market pressures

RLB “basket of goods” concept to produce a

- weighted average of trade rates, by pricing

- “A” grade office development

- multi-storey apartment building

Movement of Tender Price Index

Analysis of increased volume

We’ve seen “where we’ve been”

Crystal ball time…..!

National Average CPI

National Average CPI

National Average CPI

National Average CPI

280 National Average CPI

260 TPI Auckland

240 TPI Brisbane

London 151 Seattle 121 Dubai 99

Honolulu 141 Hong Kong 115 Orlando 99

San Francisco 140 Sydney 110 Auckland 99

Manchester 139 Macau 110 Denver 98

Birmingham 138 Adelaide 109 Las Vegas 97

Bristol 135 Brisbane 109 Christchurch 92

Boston 135 Melbourne 105 Beijing 80

Washington D.C. 131 Canberra 104 Shanghai 74

Perth 129 Wellington 102 Guangzhou 69

Darwin 123 Phoenix 101 Shenzhen 69

Los Angeles 123

Conflicting industry pressures

Some Global - Rising oil prices

Conflicting industry pressures

Some National - High interest rates

Conflicting industry pressures

Some Local - Economic growth

Conflicting industry pressures

Signs that it can’t go on:

- Flat or falling residential prices

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