Big shifts in commercial construction

26/04/2016 - 10:10

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SPECIAL REPORT: WA’s big construction companies are going through a transition phase, following the end of a major building boom.

Big shifts in commercial construction
BIG TIME: Chris Palandri at his CBD office, in front of a live video feed of the Perth Stadium project. Photo: Attila Csaszar

WA’s big construction companies are going through a transition phase, following the end of a major building boom.

Commercial office projects and hospitals have bolstered builders’ workbooks in recent years, with big towers being built at either end of the CBD and major health facilities being constructed around the city.

City-defining projects included the pair of towers at Brookfield Place, 140William, Raine Square, Mirvac Group’s Treasury Building and the four office buildings at Kings Square.

And while those projects have had a transformational effect on the city, it’s unlikely there will be another construction cycle of its size in Perth again.

Office vacancies have risen as quickly as commodity prices have plunged, resulting in commercial developers battening down the hatches to wait out the downturn.

The state government is also tightening its belt, and aside from the $423 million WA Museum, has no inclination to spend on big infrastructure projects like Fiona Stanley Hospital, Midland Health Campus, the under-construction Perth Stadium or the nearly-completed Perth Children’s Hospital; in the near term, at least.

Brookfield Multiplex regional managing director Chris Palandri said it was clear the overall size of the construction market was down significantly from the peak of 2012 and 2013.

“There are certainly some areas that are stepping into that breach and it feels to me like private sector money is becoming much more prominent than government money,” Mr Palandri told Business News.

“But the overall volume of work getting produced in WA in the commercial sector is certainly reduced.

“The pipeline of work for the industry moving forward isn’t as strong.”

While Mr Palandri said he wasn’t panicking about the levels of work available, BGC Construction director Julian Ambrose said he expected things to tighten further, which would result in real negative impacts on the construction sector.

“Anyone who denies that the next three to five years is going to be tough is kidding themselves,” Mr Ambrose said.

“We’re going to be heading into a period where there are fewer landmark projects and fewer obvious drivers to this construction boom.

“Traditionally this time is when the government would step in and build flagship projects to keep the economy buoyant.

“Unfortunately though, the government has a debt hangover because so much infrastructure was built lately just to keep up with population growth.

“Aside from transport projects, I can’t see the government’s attitude towards infrastructure changing a whole lot.”

Mr Ambrose said projects valued between $20 million and $30 million were the most hotly contested, with the tender process becoming increasingly competitive.

He said the murky outlook was also causing a real change in sub-contractor attitudes.

“Sub-contractors are now being very considered in the work they take on because they want to make sure the head contractor is going to be around to see the job through so they can get paid,” Mr Ambrose told Business News.

“As a result, we’re seeing very high-quality subcontractors start to free themselves up to take on work from a select group of main contractors, when usually in the past they would take work from whoever would pay the highest price.”

Leading lights

Remarkably, the state’s top 20 builders increased the value of their order books during the past 12 months, despite the challenges being presented.

BNiQ research shows the value of works under way by the state’s top 20 builders was up 9 per cent, to $10.9 billion, in the past 12 months.

Brookfield Multiplex solidified its position as the state’s leading construction contractor, with its name and logo displayed at the majority of construction sites for Perth’s biggest projects.

The building giant is not only leading the Westadium consortium that is constructing Perth’s biggest job – the $1.21 billion Perth Stadium, but it was also named as the preferred builder for the highly sought-after WA Museum contract.

Brookfield Multiplex has also secured the first major shopping centre redevelopment deal to be finalised in Perth, having been appointed to carry out $350 million worth of works at Mandurah Forum on behalf of owner Vicinity Centres.

Mr Palandri said the success of Brookfield Multiplex was due to its long track record of on-time, on-budget delivery.

The contractor has been responsible for many of Perth’s most iconic buildings, having built both towers at Brookfield Place, Fiona Stanley Hospital and Enex100 in recent years, among a long list of projects.

“One of our key priorities is to have our clients as advocates at the completion of the project,” Mr Palandri said.

“If we don’t have our clients as advocates at the completion of the project, it’s some form of failure on our behalf.

“It’s immense pride for use, but we like to be quite humble about it because you’re only as good as your next job.

“Things are getting tighter, ultimately clients are interested in having their project delivered on time and on budget without any issues with their builder, in terms of defects, in terms of litigation, cost claims and the like, and avoiding that is something we pride ourselves on.”

John Holland is ranked second on the BNiQ list with $1.7 billion worth of contracts, but only because of delays on the $1.2 billion Perth Children’s Hospital in Nedlands. 

The children’s hospital is a year behind schedule, prompting Treasurer Mike Nahan to recently lash out at John Holland for widespread issues at the site.

Problems at the hospital include defective water piping that had needed to be replaced, while it also emerged recently that hundreds of fire door frames would have to be re-fitted because they were not built to Australian standards.

Auditor-general Colin Murphy is also investigating complaints by sub-contractors that they have not been paid.

Apartments and hotels

Part of the reason the top 20 builders’ books collectively grew over the past 12 months is the state’s burgeoning apartments market, with Urbis research showing there were more than 2,500 apartments sold in 2015.

Hanssen is the leader in the apartments space, a result of its preferred contractor status for the state’s biggest apartment developer, Finbar Group.

In total, Hanssen has $677 million of apartment projects for Finbar on its books, and is expected to begin construction later this year on one of the largest apartment developments ever undertaken in Perth – the $411 million, 294-apartment Civic Heart in South Perth.

Other builders benefiting from the apartments boom are Probuild, which recently started work on Blackburne’s Oracle in Northbridge, and Jaxon, which is building the $100 million Pinnacle project in South Perth for Zone Q Investments.  

Probuild WA managing director Sam Delmenico said the move to apartments was a reflection of changing economic drivers in the construction sector.

“There is always competition for work and market conditions provide different challenges,” Mr Delmenico told Business News.

“As a national tier one builder, we are in a strong position to deliver great quality results and we are confident we can be involved in a number of the areas of positive development happening in WA.”

Hotel construction is similarly accelerating, with the upcoming Ritz-Carlton at Elizabeth Quay competing with the near-completed Crown Towers to be Perth’s flagship hotel development.

Building is expected to start next month at the Ritz-Carlton, with national construction contractor Probuild understood to have been appointed by developer Far East Consortium to undertake the works.

While an official announcement on the Ritz-Carlton job is yet to be made, Probuild is nevertheless expected to jump comfortably into the top 10 WA builders on the BNiQ Construction Companies list once it is formally appointed.

In total, there are 2,215 hotel rooms under construction in Perth, with more than 3,000 additional rooms in the planning pipeline.

BGC can also lay claim to one of Perth’s biggest hotel projects, with a joint venture between BGC Construction and South Korean steel giant Posco carrying out $500 million worth of works at 480 Hay Street.

The 480 Hay Street project will include a 362-room luxury Westin Perth and a 22-storey office tower.

Big malls

While apartments and hotels are big projects, the biggest growth opportunities available in Perth are likely to come from the retail sector.

Mr Delmenico said while the company was working on a number of major residential or hotel projects, retail development was certainly on its radar.

Similarly, local contractor Doric, which was recently awarded a contract to deliver an $80 million retail development at the old Station Street Markets site in Subiaco, is also gearing up to take advantage of an influx of shopping centre jobs.

In 2010, the state government dropped a contentious cap on the size to which shopping centres could expand, a move that was expected to facilitate significant investment by mall owners.

That hasn’t yet translated into significant construction on the ground, but all of Perth’s major shopping centres are subject to massive expansion plans.

Business News reported last month that Scentre Group was likely to kick off expansions at Westfield Carousel, Westfield Innaloo and Westfield Whitford City by the end of the year, with those redevelopments collectively valued at $1.12 billion.

At the same time, AMP Capital is gearing up to splash $1.35 billion expanding its Karrinyup Shopping Centre and Garden City Booragoon.

AMP is understood to have whittled down a list of contractors for Karrinyup to two – Brookfield Multiplex and Lendlease – however work is not expected to begin until mid-2017 due to a requirement for complex design and engineering work to be undertaken.

Garden City is expected to be completed by 2019, although a contractor has not yet been appointed.

AMP, however, has partnered with TRG Properties to deliver 122 apartments on an adjoining site.

Vicinity Centres and Perron Group are also preparing for a major expansion at Morley Galleria, with $420 million due to be spent on the mall in 2018.

“The shopping centre groups are getting closer and closer in getting going on some pretty big projects, although I am a little bit concerned about how they may be perceiving what’s going on in WA and the general economy with regards to where they spend their capital,” Mr Palandri said.

“They are some very big developments and they are quite complicated.

“With the infrastructure they need to provide, the shopping centres they need to keep running, the tenants they need to keep running and the tenant movements they need to make – they are quite complex projects.

“It’s not as simple as building an office building on a vacant piece of land.

“They still seem to be there, but I do have a little bit of concern how a lot of these decisions are being made in Sydney and Melbourne, and I’m a bit concerned about how many of those groups might be perceiving what’s happening in WA generally.”

Mr Ambrose agreed the projects were very substantial, saying they were backed by very reliable capital, with the city’s malls generally owned by large superannuation funds or real estate investment trusts.

“They run a very different tendering process, though,” Mr Ambrose said.

“Industry super funds tend to pick and choose unionised builders, others already have preferred construction companies.

“Often these aren’t documented competitive tender processes, so the impact on major contractors might be smaller than if it was open to the market for bidding.”

Union challenge

The impact of unions is looming as a big challenge for contractors as the market slows down, according to Mr Ambrose.

While it was encouraging that the federal government was seeking to re-establish the Australian Building and Construction Commission, he claimed the Construction Forestry Mining and Energy Union was increasingly bullying and intimidating workers on BGC construction sites.

“This activity from the CFMEU means our workforce needs to steel themselves before running the gauntlet of harassment and standover tactics that happen every morning on their way into work,” Mr Ambrose said.

“Their resilience should be recognised and applauded – in no other workplace would that type of behaviour be the norm, in no other workplace would such a militant organisation be in a position to hound and provoke workers every single day on their way to work.

“This is a significant challenge for BGC and we’re pleased to see the Commonwealth government pushing to reinstate the ABCC.

“Construction unions take a very different approach to how they go about their business and they need to be policed as such.”

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