Data analysis from Bayleys indicates that over the past two calendar years, construction costs on large commercial projects have risen between six-to-eight per cent annually — cutting into developers' margins.
Those increases of the past two years looked to have peaked. The latest Construction Market Intelligence industry review report from building data firm Rider Levett Bucknall forecasts that construction cost increases in 2019 will be in the region of 3.5 percent.
Rider Levett Bucknall's Auckland director, Geoff Speck, is not optimistic regarding skills shortages in the sector.
"Securing appropriate contractors and subcontractors to deliver projects in excess of $100m in Auckland, continues to be difficult and project timelines are likely to be compromised," he warns.
The Government's intention to reduce net migration means that — unless conditions change — access to the skilled construction workers will be constrained for over next five-to-10 years, accelerating the push towards importing prefabricated structures.
Earlier this year, New Zealand's first modular-built hotel rose five stories above the ground in Christchurch. The 88-room, 3555sq m Cosa Hotel, on a 1300sq m site at the corner of Colombo and Salisbury Sts, was built in a Vietnamese factory.
Long-time hotel owners Gary and Ann LePine's Lepton Holdings had owned the Cosa site before the Canterbury earthquakes struck seven-years ago. They looked for a prefab manufacturing contractor in Asia, because they couldn't make a traditionally-built hotel stack up financially.
The hotel was shipped in to Christchurch in 17m-long double-room and corridor modules. Shipping took 18 days and comprised about seven per cent of the building's cost. The finished room modules included all fixtures, fittings and furniture – right down to bathrooms, wiring and painting.
Cosa's $12.5m build cost was between 10 to 20 per cent cheaper than a traditional NZ commercial build, with raw materials costing anywhere between 30 and 70 per cent cheaper than NZ alternatives. Electrical cabling is the only component of the Cosa hotel build bought here.
Cosa hotel builder TLC now has two further 200-room hotels to build in its Vietnamese factory for sites in Queenstown.
Johnson says some traditional building costs, such as the use of pre-cast concrete framing, could be reduced fairly quickly by adopting modular practices. The ensuing lower degree of on-site handling would flow through to lower traffic disruption and dust nuisance, while pre-built sections are delivered. There would also be quicker finishing of external structuring.
Johnson says that aside from cost savings, benefits of modular building include the ability to carry out site-works preparation — plus construction of the lift-core — at the same time as the building is being prefabricated in an offshore factory.
New Zealand now has 26 prefabrication companies — most focussing on small-scale residential builds, and working with wooden framing.
Johnson thinks this could change rapidly as the commercial and industrial sectors push for concrete and steel modular structures.
"Looking forward, the onus will be on suppliers of these structures to deliver prefabricated modules which have a degree of design flair associated with the final look of a build project. Architects and building designers may increase their understanding of the modular-build process. They'll get to know what limitations modular pre-fabrication builders have in terms of physical delivery-of-product outside the rectangular-shaped norm."
Johnson says New Zealand could learn a lesson from Singapore, where prefabricated product use is incentivised by the Government.
