Regional commentaries

BDO Construction Sector Report 2024

Construction regional commentaries

With contrasting residential and commercial demands, varying local council priorities and funding levels, combined with an array of weather and climate concerns, New Zealand’s regions each have a unique outlook when it comes to construction.  

For example, more than three-quarters of Auckland construction leaders are actively looking for additional staff and 52% have sufficient work confirmed beyond the next year - a more favourable position than indicated by leaders elsewhere. As Aotearoa’s largest construction market, it’s no surprise that Auckland is seeing stronger pipelines and more job opportunities. Interestingly, profit margins among Auckland construction businesses are not as strong as in the South Island, where 33% of leaders reported an increase in profit margins in the past year (versus 24% in Auckland and 21% in the rest of the North Island.)

Many Auckland construction business owners and leaders report concerns about increased competition and competitive tendering, which is likely to have a trickle-down impact on forward work and profit margins. Meanwhile, the rest of the North Island (excluding Auckland) felt the most positive about their overall business performance in the past two weeks, at 67% versus 61% in the South Island and 56% in Auckland. 

Spotlight on Auckland

Auckland remains the largest construction market in the country and is affected by the same issues faced by the rest of New Zealand. Cyclone Gabrielle had aimpact on construction activity here, with a dip in activity in Q1 of 2023, and MBIE has forecast a decrease in construction activity in Auckland over the next couple of years. This is likely partly due to the decline in residential consents being issued in Auckland, which were down 27% in the year ending December 2023 compared to December 2022. Additionally, elevated interest rates may be inhibiting project feasibility. The Government’s approach to large infrastructure projects in the coming years will have a significant impact on the sector, and businesses will continue to have a strong focus on recruiting and retaining skilled labour.

Nick Innes-Jones, BDO Construction Sector Leader

Spotlight on Canterbury

The Canterbury construction sector has been strong in recent years, growing considerably in 2022 driven largely by a significant increase in non-residential building activity and post-quake anchor projects, plus an increase in residential activity. However, the post-COVID boom has now slowed, and the realities of high interest rates and inflation are hitting construction businesses hard. Residential consents are down 18% in Canterbury year on year to March 2024 (March 2024 Blackburn report) as new homes have become less affordable for buyers due to cost increases and higher interest rates. There is certainly more competition in the market to secure projects and forward workload is an issue for many. However, it’s important to remember that the boom levels we saw in 2021 and 2022 were unsustainable for many in the industry, and what we’re seeing now may be a natural correction of that.

Martin Veitch, BDO Head of Advisory

Spotlight on Southern Lakes and Central Otago

The Queenstown and Southern Lakes construction sector is dominated by residential buildsand the demand for housing still far exceeds supply. Unlike some other parts of the country, we haven’t seen prices come down in the regionand this is keeping the confidence in the sector high. As inflation and interest rates slowly begin to fall, new projects are being announced or are in the consenting process, which should keep the forward work pipeline full. For companies to grow and thrive it will be key to recruit or train staff with more advanced skills that can lead projects and teams.

Bjorn de Nijs, BDO Partner