The Australian construction industry has been winded by the global financial crisis during 2009 but is showing signs of a recovery in 2010.

International property and construction consultants Davis Langdon have measured commercial tender prices last year at a negative 3.4 percent across Australia, but are predicting a modest increase in prices during 2010.

Davis Langdon’s Tender Price Index measures the movement in tender prices across the country, and the latest report for the commercial sector forecasts a national increase of around two percent in 2010.

Davis Langdon’s national research manager, Rachel Kelloway, said the industry was off to a slow start in 2010 and most of this increase was likely to come about in the second half of the year.

“Nationally the construction sector is still highly competitive and there is nothing to indicate that the sector’s competitiveness is going to drop off any time soon,” said Ms Kelloway.

She said Sydney’s commercial sector was still ‘very subdued’ having taken a buffeting by the economic slowdown.

“Having said that as the Building Education Revolution and housing stimulus works come on line, especially in regional areas, contractors and sub-contractors alike are nearing capacity and as such market forces are starting to push prices up,” she said.

“Tender prices in Sydney remained relatively flat in 2009, but we expect some moderate increases in the first quarter of this year.”

However, across 2010, this is expected to be only of the order of two percent, and with an expected 3.2 percent increase in underlying inflation, the sector still has a long way to go, she said.

Generally opportunities for major commercial projects remain weak at a national level, with the combination of the global financial crisis, availability of finance and weak tenant demand choking off opportunities. There are, however, clear pockets of recovery under way in each state.

During 2009, the largest falls in tender prices were in Perth (8.7 percent) and Brisbane (8.0 percent), with Melbourne recording a drop of 4.3 percent in tender prices.

In Brisbane, there is a glimmer of hope that commercial market has bottomed and demand for office space from mining could go some way to reducing vacancies.

The outlook for Perth and Western Australia this year is far more positive and public sector driven segments such as health and infrastructure are expected to provide much needed fuel to the market.

The Brisbane and Perth markets are both subject to volatility because of their size, and the large drop in tender prices is seen as a natural correction from their high performance in previous years.

In Melbourne, commercial product in planning and construction phases is largely pre-committed, suggesting that Melbourne’s office market has some degree of stability in light of the current global economic conditions.

In Adelaide, the government stimulus spending is expected to have some impact on pricing pressures, particularly with the hundreds of millions allocated to the projects associated with Building the Education Revolution.

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