ANZ Construction Industry Forecast—Part 1 of 2: Challenges for the Next Five Years

Australia’s construction industry stands at the crossroads of opportunity and uncertainty. The rebound from the pandemic has been strong—the industry grew 2.2% in real terms in 2021, and forecasts predict a further 4.7% growth this year. However, new challenges like supply chain issues and inflationary pressures jeopardise the long-term viability of many projects.

So, what do the next five years hold? Is the outlook bleak? Or is there cause for optimism? This two-part construction industry forecast will help operators understand the risks and opportunities immediately facing the sector. Those who best navigate these will be well-placed to make the right strategic decisions for their firms.

In this first part of our two-part series, we’ll start by looking at the rising challenges to the Australian and New Zealand construction landscape:

Long lead times, rising freight costs and burgeoning demand are issues no one in the industry can ignore, whether you’re a sole trader or part of a large firm. The May 2022 Australian Construction Market Report, conducted by the Australian Construction Industry Forum (ACIF) in partnership with FTI Consulting, highlights the extent of the challenge.

The report forecasts a national average 4% to 8% price escalation over the next 12 months, partly due to these supply chain difficulties. Smaller markets with less secure supply chains will cop the brunt of it, with the highest cost escalations projected for Tasmania (12% to 15%), Perth (10% to 15%) and Brisbane (6%). With the price of sourcing materials rising across the board, project management software that helps operators analyse a project’s health with real-time data will be crucial.

The construction industry employs more than 1.1 million Australians—accounting for almost one in every 10 jobs. Industry participation is at record highs, but labour supply is struggling to keep up with demand partly due to decreased immigration. A tightening labour market will only increase the cost of attracting and retaining the best talent. ACIF’s Market Report forecasts the Wage Price Index to increase by around 4.5% over the 2022/23 period.

The operators who succeed will be the ones who take a robust approach to sourcing labour. Construction technology can help bridge the labour gap, driving efficiencies and speeding up the hiring process. Operators who fail to embrace it may struggle to resource projects.

Inflation is a topic on the tip of just about every business leader’s tongue. In 2021, the inflation rate of steel products in Australia was 30.8%, with materials like timber and metal products posting inflation of 18.4% and 13.2% respectively. The Bank of England says global inflation could hit 8% this year, and other banks around the world are raising their forecasts accordingly. To combat these pressures, the Reserve Bank of Australia has raised interest rates, a move that will have an impact on a project’s bottom line.

Interest rate rises increase the cost of materials, increase the cost of borrowing and decrease the demand for new projects. Construction-specific, connected job costing software is one way operators can manage these changes and keep their operations in the black.

In construction, lost time means lost money. ACIF’s Market Report forecasts industry-wide project delays due to supply chain issues and labour shortages. But these aren’t the only factors that make a project’s timelines blow out. Poor communication between stakeholders, a lack of coordination and even bad weather can slow down work. These factors make a project less efficient and less profitable.

Real-time data is the best way to understand these forces and the impact they’re having on your project’s bottom line. Connected, cloud-based construction management software breaks down information silos and removes time-consuming processes. Just because the industry is running behind, doesn’t mean your firm has to.

It seems like a lifetime since stay-at-home orders turned the industry upside down, but as that experience taught everyone in the industry, things can change at the drop of a hat.  ACIF’s Market Report is mindful of the impact of another virus wave, noting that control of the pandemic is not a certainty. ACIF notes future waves may also affect the market. For example, increased adoption of working from home could limit demand for inner-city dwellings like apartments.

Disruptive times call for flexible solutions. Again, adopting connected, cloud-based software solutions as a way of working can help your firm wade through unstable waters, analyse data on the run and make better decisions when they need to be made.