The national commercial construction sector looks patchy with few bright spots and the latest research showing that tender pricing has declined by 1.3% across the last four quarters.

The research also predicts only moderate growth anticipated for 2010.

International property and construction consultants Davis Langdon have measured commercial tender prices around the nation in the past quarter and they are predicting little growth in the remainder of 2010 with only 2% price increases expected.

The Davis Langdon Tender Price Index measures the movement in tender prices across the country.

Davis Langdon’s senior economist, Dr Andrew Wilson, said in Sydney the commercial sector continues to feel the effects of the slowdown with rising vacancy rates.

“Current projects will progressively come on-line over the next two years, but almost half the office space currently under construction remains uncommitted and developers are reluctant to start new projects until there is a boost in confidence,” he said.

“Pricing levels are expected to remain competitive due to this limited number of new projects, but we anticipate small prices increases in the second half of 2010 when contractors are likely to reinstate preliminaries and margins to pre-slow done levels.”

Dr Wilson said increases of only 1 to 1.5% are expected over the next 12 months.

The Melbourne market is healthier according to the Davis Langdon survey with the office sector showing resilience and vacancy rates not reaching the levels they have in the other capital cities.

“Significant back-fill space is already committed and there is a reasonable amount of commercial activity in the planning and construction phase,” said Dr Wilson.

“Generally the new space has a high level of pre-commitment which suggests that Melbourne’s office market has a greater degree of stability compared to the other major cities.”

Davis Langdon’s tender level index for Melbourne is expected to hold steady for the first quarter of 2010 before increasing approximately 2% over the balance of the year and then rising a further 4% across 2011.

Dr Wilson said in both the commercial and the residential sectors in Melbourne there is a regular flow of medium sized projects being placed on the tender market.

In Brisbane the level of office vacancies continued to rise in the last quarter of 2009, but the figures were better than expected and suggest an improved outlook when coupled with increasing tenant enquiries and several transactions in the smaller to medium price range.

Dr Wilson said a considerable level of refurbishment was underway and the resurgent mining and resources sectors had boosted confidence.

“The continuing difficulty and high cost of obtaining finance means it remains likely to be some time before we see any major new commercial developments in the city,” he said.

“This lull – in conjunction with the winding down of the stimulus-funded projects towards the end of the year – has many contractors concerned about future workloads,” he said. “This is leading to very competitive pricing through the Brisbane area.”

He said tender prices appear to have bottomed out in Brisbane and are expected to remain flat for the next quarter before a small rise in the latter half of the year as the market recovers. Modest 2% growth is expected over the next 12 months.

In Perth commercial construction activity remains slow with few significant projects in the pipeline. 

Dr Wilson said that following the considerable cost fluctuations of previous years, prices are expected to remain subdued in the near term with highly competitive  tenders.

Davis Langdon aid the commercial construction sectors in Cairns, Townsville, Darwin and Adelaide all remain subdued.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au