Construction caught in a demand, supply dilemma

Posted On Sunday, 21 October 2007 02:00 Published by
Rate this item
(0 votes)

Building material costs have risen sharply again in the second quarter of 2007 — industry experts said demand for commercial space was outstripping supply — and developers are having difficulty bringing new projects on stream.

Construction IndustryBuilding costs in the second quarter of 2007 rose by 29%. The index reflects the average building cost per square metre priced by building contractors.

It contains a combination of input costs and pricing which varies due to market conditions.

Retail property showed an increase in building costs of 39.5% in the second quarter — the latest available figures; office space by 26.2% and industrial space 13.9%.

Large construction companies are operating at full capacity with the World Cup stadiums, the Gautrain and the Coega development zone taking up all their activities. Some impact from higher interest rates is also filtering through and a shortage of materials is likely to continue for some years.

While the cost of materials is rising — cement is now being imported — contractors and service providers are increasing their rates at well above inflation levels and there is likely to be renewed pressure on building costs.

“With costs escalating at present rates, rentals for existing properties will be rising as they come up for renewal, said Craig Hallowes, the Association of Property Unit Trusts spokesperson. “We can’t bring a new office block on line in Sandton for under R120/m². Although I don’t think that we are yet at the point where rentals will be running at replacement cost, if the rent is currently R70/m² or R80/m², then I think that you can expect a 20% rise when renegotiation takes place. ”

In the past it would take about 12 months to construct an office block when property was available and rezoning took place quickly, but municipal councils have tightened up on rezoning applications.

In the case of retail developments, a larger number of sub-contractors are being used for items such as glass and aluminium and these specialists are in short supply.

In a twist to the rising building material costs, the Competition Commission has indicated that it will look at the building and construction sectors to assess if there are any anti-competitive practices — as well as bid-rigging, where rival companies decide beforehand which of them will win a tender.

 

Last modified on Tuesday, 15 October 2013 12:08

Most Popular

Prevance Capital launches the Executive Premier Funding Solution, targeted at experienced, successful property developers and businesses in South Africa

Sep 14, 2021
Are you tired of waiting for lengthy traditional funding methods to be approved? Prevance…

Attacq sees success with high-rise development The Mix

Sep 22, 2021
Giles_Pendleton_Attacq
Waterfall’s latest high-rise residential development, The Mix Waterfall, is approaching…

Multinational companies moving into Nairobi’s new Garden City Business Park

Aug 31, 2021
Garden City Business Park in Nairobi Kenya
With its modern, flexible workspaces and landscaped courtyard areas, the newly completed,…

SAIV offers advice to property owners affected by the July 2021 unrest: You may be eligible for legislated economic relief

Sep 10, 2021
Janet_Channing
The civil unrest seen in KwaZulu-Natal and parts of Gauteng in July had a devastating…

Another record sale in Johannesburg CBD

Sep 01, 2021
Johannesburg CBD -3
Aucor Property has once again set a record with the sale of 4 mixed-use, multi tenanted…

Please publish modules in offcanvas position.