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
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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

Number of cranes goes sky-high

The construction boom is seeing an unprecedented number of cranes rise across New Zealand’s cities, according to research released today. The Q2 2017 RLB Crane Index revealed a record 132 cranes towering over New Zealand’s cities, with Auckland alone accounting for 72.

crane

“In Auckland, in particular, strong economic growth driven by high inward migration and increasing tourist numbers, along with solid housing activity, manufacturing and consumer spending, has seen the rock star economy continuing to drive the construction industry, where demand is stretching the current supply,” said Chris Haines, Rider Levett Bucknall’s Auckland Director.

“Auckland continues to dominate New Zealand skies with 72 long-term cranes, 55 per cent of all cranes observed across the seven key centres,” Haines said. “The current index highlights a 13 per cent increase in the number of cranes within the Auckland region since the last count in Q4 2016. Twenty-three new cranes have been erected and 15 have been removed from projects that are nearing completion.” Construction work put in place increased by 20 per cent in the 2016 calendar year, making it the fifth consecutive year of growth.

Source:

  • Anne Gibson
  • NZ Herald

Commercial Bay – Auckland

Source: P Precinct

Focus on apartments for Auckland

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The Merchant Quarter apartments in New Lynn

Nearly 6000 new apartments are set to be built across Auckland over the next three years, with most planned for suburban and city fringe areas rather than the CBD, new research reveals.

The new housing stock includes developments that are currently being marketed, have building consent or are under construction.

Thousands of other properties are still in the pre-planning stages or envisaged on surplus land being freed up for private developers by Auckland Council and the Crown.

The new apartment stock will help address a drastic housing shortage that has seen house prices soar across the city by 20 per cent in the past year to a new record median of $749,000 last month, according to Real Estate Institute data.

apartmentCommercial real estate agency CBRE has released figures on the Auckland apartment market.

They show the city has 26,500 apartments in 393 buildings, 68 per cent of which are in the CBD.

Another 5723 apartments in 87 buildings are in the “active development pipeline” and set to be completed by late 2018. This represents a 20 per cent increase in apartment stock – to 32,000 apartments in 480 buildings.

While apartments have traditionally been built mainly in the CBD, the number constructed in fringe suburbs and suburban areas is forecast to reach an all-time high next year, with 1170 units due for completion in fringe areas, 960 in suburban zones and 790 in the CBD.

The new housing is planned right across the city, from Orewa to Pukekohe, and Beachlands to Henderson.

CBRE senior managing director Brent McGregor said 530 apartments in 12 buildings had already been completed this year, and a further 1486 added to the pipeline – more than half of them outside the CBD.

“What this research shows us is that the time of the fringe city and suburban apartment has come. Developers are responding to demand from people looking for affordable and attractive places to live, and apartment living is on the list all over the city.” Additional developments still in pre-planning stages included CBD towers, under-utilised fringe sites, building conversions, wider estate developments and new low-rise buildings in greenfield suburban areas.

Real Estate Institute chief executive Colleen Milne said affordability and supply were the main catalysts for Auckland’s housing problems.

“Apartments make excellent use of the land and often provide extra facilities, off street parking and location.”

The research follows warnings that an over-supply of low-quality apartments could send prices plummeting.

Source:

  • Lane Nichols
  • NZ Herald
  • Photo: Doug Sherring

Catalyst in the UK

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• Commercial Construction – Buildings
• UK based Client interviews 18th-22nd May
• Fast paced recruitment project

Our client – one of New Zealand’s leading main commercial construction companies is visiting the UK 18th to 22nd May 2015 with the intention of hiring great people to strengthen their already dominant position within the NZ market.

As New Zealand based International Sourcing specialists and as preferred suppliers, Catalyst Recruitment has been asked to assist with finding suitable professionals to ensure their recruitment trip is as successful as possible.

Numerous roles are being sourced and include,

• Project & Senior Project Managers
• Design Managers
• Quantity Surveyors & Senior Quantity Surveyors
• Commercial Managers
• Planner/Programmers
• Construction Managers
• Pre-Construction Managers
• Site & Senior Site Managers
• Service Engineer/Managers
• BIM Specialists

Catalyst is already speaking to candidates in the UK every morning in preparation for the visit and the response so far has been great. We’re always keen to speak to new candidates so if your experience in commercial construction fits any of the roles above you need to get in touch with us straight away. Contact me via pponder@catalystrecruitment.co.nz and include a copy of your CV to know more.

Residential building consents rebound after two month slump

SCCZEN_A_140411NZHPEHOUSE4_620x310New Zealand building consents for residential housing, excluding apartments, rose to a six-and-a-half year high in March, snapping two months of decline.

Excluding apartments and units, which are typically volatile from month to month, seasonally adjusted consents rose 1.3 percent to 1,813 units in March, the most since November 2007, according to Statistics New Zealand. Including apartments, seasonally adjusted new dwelling consents rose 8.3 percent to 1,999.

Annual residential issuance rose 30 percent to 22,366 from a year earlier. Stripping out apartments, annual permits for new building rose 25 percent to 19,768.

“The building industry is well positioned for strong growth in quake-related activity in Canterbury this year, and to a lesser degree, a lift from depressed levels in the Auckland market,” Michael Gordon, senior economist at Westpac said in a note.

Issuance of new building permits has been on the rise as the Canterbury rebuild and a housing shortage in Auckland fuel demand for property. Increased construction activity is seen as one of the major drivers of accelerating economic growth this year.

Today’s figures showed new dwelling consents in Auckland rose to 561 in March from 393 a year earlier, while new Christchurch permits to 342 from 126.

The value of non-residential building consents rose 13 percent to $4.4 billion in the year ended March while the value for residential buildings gained 32 percent to $6.9 billion. The value of all building consents rose 23 percent to $13.1 billion.

Source:

  • NZ Herald
  • Photo: Paul Estcourt
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