As architects and builders, we pay close attention to market trends and movement in the residential construction and property sectors. Here’s our Spring 2016 quick look at the sector.
Broad Trends
At present, demand for architectural services remains strong across the sector in Sydney, with building approvals and architectural employment both up on long term trends. Broader economic conditions, including record low interest rates and strong median house price growth over the last five years in Sydney has increased the viability of renovations and rebuilds for many private residential clients, as the perceived risks of overcapitalisation fall.
Trade Availability
Anecdotally, strong demand from large commercial projects such as Barangaroo continue to drive up the price of trades which work across commercial and residential sectors up, with the finishing trades of gyprockers, tilers and painters in particular shortage. As a consequence, over the last year we have seen many subcontractor quotes increase markedly and a general unwillingness to negotiate due to the amount of work on offer. This has a flow on effect of reduced availability and greater lead times for many trades and supply items.
Materials
Raw material supply is also affected. Most notably, steel prices are likely to remain volatile for the foreseeable future. After reaching record lows in 2015, input costs such as coking coal have more than doubled since January and iron ore prices have also risen. Coupled with changes in Chinese production and demand, the global steel supply and demand remains in flux and local prices will likely continue to rise over the next 12 months.
Conclusion
Our direct experience with trade availability and pricing is reflected in conversation with other architects and quantity surveyors, with reports of an increase in building prices of 5-10% or more over the last 12 months and builder’s margins increase to 25% in some cases. This pricing and growth rate appears likely to continue over the next 12 – 18 months at a minimum.
How We Manage Pricing
We are one of the few architectural practices with the expertise to price our work as it is being designed. The software packages we employ allow for 5D modelling, the 4th dimension being cost and the 5th dimension being time. We use both ‘Revit’ and ‘Cost-X’ and have recently formed a working partnership with an eminent 5D quantity surveyor to ensure our pricing is both current in-house and independently tested against live market conditions. We have a fixed margin for construction services that has remained unchanged for over a decade and we can offer fixed and hourly fees for architectural services across the majority of project types.
It is a simple fact that in most projects, cost drives design decisions. The traditional architectural practice service model is ill equipped to address client questions around cost, as architects are often removed from direct contact with contemporary construction costs. Whether a client approaches us with a $100k budget or $10M budget we have never had a client with an open cheque book, every client has an upper limit and seeks to stay within that limit from the outset. Keeping our clients in an informed position with regard to the cost impact of decisions from the preliminary consultation to the final construction invoice is an important part of our services.