Competition pushing construction sector into ‘race to the bottom’

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Competition has pushed the construction sector into a “race to the bottom” where companies are taking on projects to win revenue rather than chase profit, says a top industry boss. David Prentice was chief executive for seven years of NZX-listed Opus International Consultants, a multi-disciplinary infrastructure consultancy with 3000 staff that was bought by Canada’s WSP Global in December.

Prentice, who is now leading the integration team at WSP Opus in Wellington, did not wish to comment specifically on issues at Fletcher Building, which last week announced further losses of $660 million at one of its divisions and said it would not be bidding on any new big projects. But speaking about the construction industry generally, Scottish-born Prentice told the Herald earlier this month that the building market was becoming increasingly challenging.

“To design a building 20 years ago you’d need top structural engineers, your top architect, your top mechanical and electrical engineers. Nowadays a lot of this can be done using computer packages and what have you. So what it’s doing is it’s taking the design away from almost an art to a science,” Prentice said. “And what that means is that the margins that can be made on vertical infrastructure such as buildings is far less than it was before, therefore the need to make sure that you’re absolutely on point when you come to do that work is essential because very quickly a very small margin can turn into a very big loss,” he said.

“You always want increased competition but as long as increased competition isn’t a race to the bottom. Unfortunately it has been a race to the bottom so people are going in incredibly tight to actually win revenue, so they’ve been chasing revenue as opposed to chasing profit.” These issues weren’t isolated to New Zealand and around the world people in the building sector were having to work harder “to make an honest buck”, he said.

Prentice believed that the way in which contracts were procured needed to change as right now the client or customer was pushing all the risk to a consultant or contractor. “The best contracts without a shadow of a doubt are those contracts where risks are explicitly shared between all three parties, consultant, contractor and client … I think the client and the customers, particularly central and local government, have got a long way to go in respect of maturity in how they procure projects.”

Prentice’s comments were echoed by Registered Master Builders Association boss David Kelly. “We need to work with government to improve the way we manage pricing and risk in our sector,” Kelly said. “Government procurement should not be an exercise in one party minimising all their risk. At the end of the day, all parties need to commit to working collaboratively and equitably to deliver on a project. Anyone building or renovating a home, let alone a multi million dollar construction project, appreciates that there needs to be some flexibility in adjusting for costs”, he said.

“We need to move away from focusing on cheapest initial price — this never gets the best result, limits innovation and stifles research and development,” he said. In the wake of Fletcher Building saying it would not bid for any more big construction work, Auckland Airport chief executive Adrian Littlewood said any company with big projects would consider using overseas firms, including from China. “We like many others in New Zealand would like to see a proper and well-functioning construction industry [here].

There are also a bunch of European operators who have acquired New Zealand businesses and operate in New Zealand,” Littlewood said on Friday. Overseas firms would have to draw on New Zealand sub-trades if they were involved in big projects as it was difficult to import all the skills. Auckland Airport is spending $1.8 billion over five years on building infrastructure and Fletcher Building is involved in one phase of the Airport’s big build — the international departures terminal. Littlewood said Fletcher’s focus on completing projects was important for his company.

Source:

  • Hamish Fletcher
  • NZ Herald
  • Photo: Getty Images

City Rail Link – Cut & Cover Construction

57-storey giant set to tower over Auckland

auaHengyi Pacific, the company planning a 57-level tower in downtown Auckland, has already built two Melbourne super-towers and is well under way with a third. And now it has big plans for its site here. Although many Auckland apartment projects have been cancelled before construction began, Hengyi – one of Australasia’s largest high-rise unit specialists – appears set on going ahead. The $300 million Pacifica project would be New Zealand’s tallest apartment tower. Construction is due to start next month, near Auckland’s waterfront.

Dean Fossey, a Hengyi Pacific director who is based in Melbourne but comes to Auckland every fortnight or so, this month showed what the company has done across the Tasman, and revealed more detail of its Auckland plans. “By March next year you’ll be starting to see the structure rising,” he said. Features of Hengyi’s two existing Melbourne towers give an indication of some of the elements planned for the Auckland boutique hotel/apartment tower, on a site between Commerce St and Gore St, a block from the waterfront in the Britomart area.

Hengyi’s first Melbourne project was The William, an office block conversion of two adjacent buildings – a 23-storey tower on William St and a 21-storey building in Little Bourke St. That has an outdoor pool and a hotel. That was followed by the Light House project on Elizabeth St in the Melbourne CBD. The newly opened 69-level, 607-apartment tower is distinctive for its colour and angular floor plates. It has almost a Rubik’s Cube look, all angles, colours and jutting points, making it stand out strongly on the city skyline. Melbourne developers are not afraid of colour – a big difference to Auckland. Elenberg Fraser were the architects and Multiplex Constructions built it.

And Hengyi is now working on Swanston Central, designed by the same architect, a 72-level, 1039-apartment project nearby at 168 Victoria St in Melbourne’s Carlton neighbourhood. In fact, level 69 of Light House provides a bird’s eye view of Multiplex’s progress on Swanston Central. On the ground floor of his offices on Collins St in Melbourne’s CBD, Fossey has models of The William and Swanston Central. Also based in that office is Hengyi chairwoman and founder Min Wang, originally from China, and director Lu Xing, also originally from China but in Melbourne for more than 20 years. Both had returned this month from a trip to Tibet, where they visited temples and viewed Mt Everest, said Xing, sporting Tibetan wrist beads.

Aged in her late 40s, Wang is said to be a billionaire as a result of developing buildings in China. Her CV shows she has an MBA from Beijing University. Her partner, Liang Chen, is Hengyi president but while she lives in Australia, he remains in China. Hengyi is affiliated with mainland Chinese developer Shandong Hengyi. Other Hengyi Pacific directors are Jeff Wang, Fossey and Hengyi’s boss on the ground in New Zealand, Liz Scott, who is the company’s general manager (NZ). Simon Manley is Hengyi’s development manager.

Fossey said car parking efficiencies were one of the features planned for the big Auckland tower. “We don’t dig a lot of holes,” he said, pointing to just two basement levels at The William and two at Swanston Central. “We’re not big on basement digging.” Stacking systems maximised car parking: at the newly opened Light House, there are just 158 parking spaces over seven levels. “This is how we get away from digging a hole.” Two car parking lifts are planned for The Pacifica, with robotic-style car stackers. Residents will drive into a dock, leaving their vehicle on a turntable. The car will then be remotely moved into place. Fossey said Hengyi had examined high-tech car parking systems in Germany and Singapore. “We just use the [car] lift like a passenger lift. Car dependency in Melbourne has diminished.”

In Auckland, ground works for the project will involve boring for piles and pouring concrete for the foundation. The skyscraper itself will be built of concrete – in contrast to the steel-framed Commercial Bay project, now rising nearby – with a double-glazed glass curtain wall. Exterior balconies will be on the lower levels. “Light House has balconies up to about level 40 but it’s not possible above that. It’s a decision we make project-by-project,” Fossey said. The now-rising Swanston Central will have exterior balconies up to about level 24, he said. “But Pacifica will be on a site more exposed to the water than the Melbourne projects are,” Fossey said. Hengyi’s Melbourne projects are far from the city’s tallest. For example, Multiplex is building Australia 108 in the city’s Southbank area, a residential tower that will be 319m tall, not far short of Auckland’s 328m Sky Tower. That Melbourne super-tower is due to open in 2020, and will have 1105 apartments on 100 levels, says Multiplex. Fossey said Aucklanders had welcomed Hengyi’s arrival and were “more welcoming than Sydney or Brisbane”, where the developer has also looked for work. “Going into Auckland, people are interested in what we’re doing, trying to understand it.”

But will the huge Pacifica project flood the market for apartments? In a study, Colliers International found 1391 new apartment units – including those at Pacifica – in the CBD, 961 on the city fringe and 1443 in suburban areas. Half the units are under construction, but building has not started on the other half. Pete Evans, Colliers’ residential project marketing national director, said next year would see the highest number of Auckland apartments completed in more than a decade – but not enough to meet demand, and only a year’s supply. “In major cities with population growth, we would expect supply to be anywhere between 12 to 24 months. Most apartment projects take two to three years to build, so the current under supply will remain in the foreseeable future,” said Evans. “Auckland’s population growth, and banks restricting funding, is not assisting the needed supply of new apartments.”

Source:

  • NZ Herald
  • Anne Gibson

$300m Riccarton Racecourse housing development gets Government green light

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The Government has approved a $300 million, 600-home development at a Christchurch racecourse.

Building and Construction Minister Nick Smith said building could start at Riccarton Racecourse after Cabinet removed the land’s reserve status on Monday.

The land, situated around the outside of the race track, will be developed by the Christchurch Racecourse Reserve Trustees and Ngai Tahu Property.

Parliament passed legislation to hasten the development last June.

Smith said freeing up the land would increase the housing supply and provide a financial boost for the Canterbury racing industry.

“The key to improving affordability is increasing supply and this development will do that while helping first home buyers into a new, high-quality homes,” he said.

“This development, alongside those at Awatea, and Colombo and Welles streets, is the final phase of the Government’s housing response to the Canterbury earthquakes.”

Smith said Government interventions in house planning and supply since the earthquakes made Canterbury one of the most affordable regions in the country.

“It provides a model of how we can resolve issues in other centres and a competitive advantage for the Canterbury region in attracting new industry and people.”

Source:

  • Jamie Small
  • The Press

Stunning stadium pitched for Auckland, sunken into waterfront

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Jaw-dropping concepts for an iconic new national stadium have been pitched to Auckland Council, proposing a state-of-the-art arena be submerged into the city’s waterfront. A portfolio of spectacular designs can be revealed from documents delivered to the office of Auckland Mayor Phil Goff last month. The Herald on Sunday has obtained them through the Local Government Official Information and Meeting Act [LGOIMA].

Dubbed The Crater, the idea centres on a subterranean multi-events venue, inverting conventional design by building below ground rather than above. Created by Auckland design and marketing figure Phil O’Reilly, three potentials factor in a core concept of a sunken bowl-type arena, as well as renderings of a roofed version. A third concept incorporates new cruise ship terminals that would flank the facility, although O’Reilly said the general idea could also work inland if the waterfront was dumped as a location.

Communications through Goff’s office, released through the LGOIMA, show O’Reilly submitted the artist impressions to the office of the Mayor on March 15, accompanied by a written proposal. O’Reilly said as far as he is aware, the submerged venue would be the first of its kind anywhere in the world and was a chance for Auckland to build an iconic landmark that would be recognised the world over – but in keeping with Auckland’s natural volcanic landscape. “We always do something derivative that is quite cool but not quite up to it. This is an opportunity to do something that is truly unique,” O’Reilly said.

Although not as large in scale, likely between 30,000-50,000 capacity, O’Reilly said a truly cutting-edge design could see the Kiwi venue punch way above its weight and become as recognised as some of the most famous on Earth. “You’ve got to think outside the box. Why not put it into the harbour?” O’Reilly said his ideas have not been formally costed, but conversations with industry experts have him adamant that digging down is cheaper than building up. “From my discussions, because there is no need to build an above-ground structure, there are no architectural issues – or costs associated to that,” he said. “It would be cheaper to significantly cheaper, and Aucklanders would love that.”

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The safety of a stadium sunk into open water is also an obvious concern. But O’Reilly was confident rising sea levels as well as natural disasters could be handled. “I would always compare other infrastructure, particularly like Britomart, that’s a great example that has tens of thousands of people going through it each week and is below sea level,” he said. O’Reilly he’d had no word back from Goff’s office beyond an “automatic reply” to his email.

Communications released under LGOIMA show Goff’s office forwarded O’Reilly’s pitch to Council’s venues arm, Regional Facilities Auckland (RFA), whose chief executive Chris Brooks responded, acknowledging receipt. An initial study has been commissioned by RFA to examine whether Eden Park should be replaced by a new stadium somewhere in downtown Auckland. An RFA spokesman said that report, which is being prepared by global accounting and advisory firm PricewaterhouseCoopers, “should be through to the mayor sometime within in the next 5-6 weeks”.

When asked for comment on The Crater, RFA said it won’t be considering any specific stadium designs or concepts until a strategy is settled. “As we have previously announced, RFA has engaged professional advisers to work with it on a pre-feasibility study to determine the viability of establishing a purpose-built National Football Stadium (NFS) located in the central city,” a spokesman said.

“The pre-feasibility will determine the viability of central city locations and business scope for a potential stadium.” Goff has previously said Auckland could not afford a white elephant, adding the 50,000-seat Eden Park was limited to 21 night events and could need another $250 million spent on it over the next 15 years.

In March last year, rich-lister and Vodafone Warriors owner Eric Watson pledged to invest in a new stadium for downtown Auckland, believing there were “benefits for Auckland”. Watson also revealed he had already approached other potential investors. Talking to the Herald on Sunday, Watson welcomed O’Reilly’s crater concept, as he eagerly awaits the upcoming PwC report. “I understand the PwC Feasibility Study is not far off but in the meantime it’s great to see options for how a waterfront stadium could work,” Watson said. He said he would support a location that “stacks up financially and is ‘the best option’ in terms of a range of factors”.

That included transport and parking options, commercial opportunities, multi-use options of the venue and “visual appearance”. “Ultimately the location and design that ticks as many boxes and meet as many needs as possible will ultimately be the best option for the city. It will be interesting to see what the PwC Feasibility Study recommends.”

Source:

  • Simon Plumb
  • NZ Herald

 

Infrastructure spending to get boost of billions in May Budget

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$812 million will go towards repairing State Highway 1 around Kaikoura.

Finance Minister Steven Joyce will lift infrastructure spending by $4 billion more in the May Budget than previously indicated and an extra $7b in the following three Budgets. Of the $4b extra in next month’s Budget $812 million will go towards repairing State Highway 1 north and south of Kaikoura, which was damaged in the November earthquake.

Details of how the rest will be spent will have to wait until May 25, Joyce said in a formal pre-Budget speech to the Wellington Chamber of Commerce today. However, he announced a new debt target for the Government, to reduce net debt to between 10 per cent and 15 per cent of gross domestic product (GDP) by 2025. The current target is to reduce net debt to about 20 per cent of GDP by 2020; it is expected to settle at 24.3 per cent by the end of June.

On the issues of tax cuts, Joyce said the Government remained committed to reducing the tax burden “and in particular the impact of marginal tax rates on lower and middle income earners, when we have the room to do so.” Joyce also hinted at greater use of public-private partnerships (PPPs). Joyce said that the boost to capital expenditure would represent the biggest addition to the Government’s capital spending in decades.

“To put that into context, the net new capital allocated in the last four Budgets was $4.8 billion, of which $4.1 billion was funded through the proceeds of the mixed ownership model programme.” In between Budget 2016, the Government was forecasting just $3.6b in new capital spending between Budget 2017 and Budget 2020, which would now be $11b in new capital spending.

“If you add the Government’s budgeted new capital investment together with the investment made through baselines and through the National Land Transport Fund, the total is around $23 billion over the next four years, or an average of nearly $6 billion per year.” And we want to extend that further, with greater use of public-private partnerships, and joint ventures between central and local government and private investors.”

Joyce said New Zealand’s stronger economic performance flowed through to the Government books. For the first eight months of the current financial year, tax revenue was nearly 4 per cent ahead of predictions in Budget 2016. “Our surplus in the eight months to February was $1.4 billion. That’s more than $900 million more than was predicted in the [December] half-year update. “A growing and more resilient economy allows us to meet some of the pressing needs that the Government is faced with from time to time.”

But he said one of the biggest risks to the New Zealand economy were the “more insular” economic policies being pushed overseas and by the government’s political opponents domestically. “Many politicians, even those in New Zealand, want to be more protective on trade, slash immigration, reduce foreign investment, institute radical new environmental regulation, centralise wage bargaining, blow up our R&D [research and development] incentive system or stop much needed roading being built, and increase taxes. “That’s the opposite of a recipe for growth. That’s a recipe for stalling growth.”

Source:

  • Audrey Young
  • NZ Herald
  • Photo: Mark Mitchell

International hotel group buys Cathedral Square site for new hotel

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A major Japanese hotel and tourism group has bought land in Cathedral Square for just over $7 million to build a big hotel. The 2000sq m vacant property runs from Cathedral Sq to Gloucester St. It is part of the former Press site.  The deal has been called a vote of confidence in Cathedral Square, which has been a slow starter in the rebuild. The project will bring the number of existing and planned hotel rooms in the central city to about 2500. Christchurch lost more than three quarters of its 3700 hotel rooms in the earthquakes.

Former owner Canterbury Property Investments had been struggling to develop their own hotel on the site when the company was approached to sell, said director Miles Yeoman. Confidentiality agreements mean the hotel group’s identity has not yet been disclosed. It is understood to be new to Christchurch and will own, build and run the hotel.  “I understand they are going to move fairly quickly to build a big hotel,” Yeoman said. “We’re disappointed we couldn’t make something work ourselves, but this is great news for Christchurch, and for that part of the Square.”

Noel Gilchrist from commercial real estate firm Colliers, who brokered the deal, said the hotel would be “significant”, and would cover the whole site. Council rules mean the building could be up to 28 metres high. “They are working on the hotel plans. They like the site and it will be large-scale,” he expected the hotel would be “at least five-star”. The sale was settled on Wednesday. The $7.1m price was nearly double the $3.598m Yeoman’s company, Canterbury Property Investments, paid for the land in 2014.

The new owner is the properties fourth since the earthquakes. Development plans including an office building, a replica of the former Press newspaper building, and a Quest hotel have been proposed and abandoned in that time. The land is now used for car parking. The news follows last month’s announcement that developer Nexus Point will build new offices for telecommunications company Spark on the former BNZ House site. Gilchrist said the hotel news signaled confidence not just in Cathedral Square, but in the whole central city.

“It’s a vote of confidence of what is happening. We are getting a convention centre, the library is going in, and there are new office blocks going up. It gives the purchaser confidence that they are in the right place. “Add to that the tourism boom, and the fact that we’re short of hotel rooms. This is a good outcome all round.” He said that despite the amount of vacant land in the central city, sites suitable for top-class hotels were scarce as the operators wanted an outlook over a park, square or river. “Christchurch is on the radar of overseas buyers because New Zealand is a popular destination from Asia. We’ve been contacted by a number of hotel chains wanting sites for hotels.”

What about the other Hotels?

  • Already under way in Cathedral Square is the conversion of the former Millennium Hotel into Distinction Christchurch hotel. It should open by early next year.
  • The former Forsyth Barr office building opposite Victoria Square is being redeveloped as the new Crowne Plaza hotel, which is due to open this year.
  • A Holiday Inn Express is planned for Gloucester St between Press House and Cathedral Junction.
  • The Millennium chain is understood to be looking for a new site in or around Cathedral Square.
  • The Peterborough hotel will be built opposite Christchurch Casino.
  • Canterbury Property Investments will build a Quest hotel on the corner of Manchester and Southwark streets.
  • An apartment-style hotel is planned for Colombo St just north of Kilmore St.
  • The former Rydges hotel building may be repaired and reopened, but its owners are in insurance disputes.

Source:

  • Liz McDonald
  • co.nz
  • Photo: Iain McGregor
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