News | Business
26 Jun 2017 14:02
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • News
  • Sport
  • Weather
  • Olympic Games
  • Ski Report
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • Crime.co.nz
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business

    Capacity constraints raise building costs

    Capacity constraints in Auckland's construction sector have been driving up building costs, eroding margins for companies locked into fixed-price contracts.

    21 March 2017

    Capacity constraints in Auckland's construction sector have been driving up building costs by more than four times the rate of inflation in recent years, eroding margins for companies locked into fixed-price contracts.

    John Dakin, chief executive of industrial and commercial property investor Goodman Property Trust, says the cost per square metre to build the average warehouse in Auckland is about 50 per cent more expensive today than it was five years ago.

    And his understanding is that construction costs have been rising at an annual 8 per cent a year for the past five years. In that time, the annual consumers price index hasn't risen by more than 2.2 per cent.

    Fletcher Building this week slashed $110 million from its guidance for full-year operating earnings before interest, tax and significant items after taking a deeper look at the building and interiors (B+I) unit of its construction arm, where losses on two major projects have been identified.

    "In the last few years, construction pricing has been the biggest challenge," Mr Dakin says. "We've seen massive construction price escalation."

    That tallies with assessments from other property investors including Precinct Properties, which told analysts including Macquarie's Stephen Hudson last September that since it had signed the construction contract for its Commercial Bay development in Auckland with Fletcher Building in December 2015, construction costs for comparable Auckland CBD office projects had increased by 10 per cent.

    Fletcher said on Monday that Commercial Bay remained profitable although losses at another major project and a provision for expected losses at a second project meant its construction division would post a loss this year.

    Mr Dakin declined to comment specifically about Fletcher but said as a consumer of construction services, Goodman had faced "significant cost escalation" from the half dozen builders the company regularly used.

    "At the moment there's a lot of price escalation around labour. There's some building material cost escalation," Mr Dakin said. "We're probably going to see a bit of rental increase" as a result.


    NZN




    © 2017 NZN, NZCity


     Other Business News
     26 Jun: NZ King Salmon lifts earnings guidance
     26 Jun: NZD edges up amid bets on stronger kiwi
     26 Jun: Tower in trading halt as Vero lifts offer
     25 Jun: Moeraki Boulders gets speed control
     25 Jun: Posties' union delivers NZ Post broadside
     25 Jun: Kiwifruit class action headed to court
     25 Jun: Call to track building materials
     Top Stories

    RUGBY RUGBY
    All Blacks show Hurricanes the way More...


    BUSINESS BUSINESS
    NZ King Salmon lifts earnings guidance More...



     Today's News

    Politics:
    Donald Trump, Narendra Modi parallels excited conservative Hindu nationalist group 13:57

    Golf:
    Ko slips further down world rankings 13:47

    Accident and Emergency:
    Otago plane crash investigation to begin 13:27

    International:
    Bali bombing: Guantanamo Bay detainee charged over 2002 attack, Julie Bishop welcomes move 13:17

    Boxing:
    Parker to fight Fury in Manchester 13:07

    Sailing:
    Dawson bronze wraps up World Cup regatta 12:27

    International:
    The silent partner: What it was like for journalist Eliza Harvey when her correspondent husband was shot 11:57

    Law and Order:
    Sir Ngatata Love's appeal dismissed 11:57

    Business:
    NZ King Salmon lifts earnings guidance 11:07

    Sailing:
    Team NZ must keep improving: Burling 10:48


     News Search






    Power Search


    © 2017 New Zealand City Ltd