Big hikes in building costs

2008-06-05 00:00

Building costs across industrial, retail and office projects are set to rise further, supported by the ongoing price growth of a number of inputs.

The expectation comes on the back of data revealing that building costs in the first three months of 2008 grew 14,6% year on year, after posting mild cost growth throughout much of 2007.

Analysts appear to be in agreement that commercial building costs will show double-digit year-on-year growth in the short term.

According to the revised FNB Commercial Property Building Cost Index for the first quarter of 2008, constructed by Industryinsight, costs in the building sector grew 14,6% year on year from 9,9% year-on-year growth in the final quarter of last year.

FNB property strategist John Loos told The Witness that the rising costs of materials, coupled with the continued development of major civils and infrastructure projects, will place pressure on the supply side.

He warned that one should not read too much into average building cost values across different projects.

Having said this, Loos revealed that national average building costs for industrial projects rose to R4 915 per m2 (18,6% year-on-year growth), while office projects came in at R5 947 per m2 (11,2% year-on-year growth).

The average costs in relation to retail projects were R6 377 per m2 (15,2% year-on-year growth).

University of KwaZulu-Natal economist Clive Coetzee said input prices — for materials and inputs such as steel, cement, electricity and skills — will continue to rise.

The upward march of global oil prices has contributed immensely toward rising costs in the building sector.

Coetzee noted that double-digit growth in building inflation will continue until there is a moderation of crude oil prices.

He believes that there remains a significant level of demand for industrial and warehouse developments in KZN.

“This is especially true of warehousing. Given the recent rise in petrol and transport costs, companies will look to fight these costs by putting up warehouses in strategic locations,” said Coetzee.

Although costs are expected to maintain their upward momentum, it is unlikely that this will put pressure on the margins of developers.

“Developers are able to pass on these costs. They build in escalations based on inflation … and it is not a very competitive market,” explained Coetzee.

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