The New Zealand construction sector is slowly moving towards the next growth cycle following a slowdown in development activity, according to the latest research from Colliers.
While data from Stats NZ shows a decline in building consent issuance during the past 12 months, indicating subdued short-term development intentions, prospects for a transition to the next growth cycle are improving.
The latest report on building activity released by Stats NZ shows the value of non-residential building work put in place in the final quarter of 2024 was approximately $2.84 billon, a 9.5 per cent reduction from the figure reported in Q4 2023.
This mirrors the reduction in building consent issuance nationwide, which has declined from post-Covid peak levels across the three major commercial and industrial sectors.
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Data from Stats NZ shows total annual consented industrial workspace stood at 958,070sq m as of January. This is a decline from the 1,474,340sq m approved in the 12-month period ending in October 2022, marking the cyclical peak.
Consented retail space also declined in the 12 months to January, standing at 118,465sq m. This marks a 55 per cent reduction from its peak level in the year to January 2023.
Consented office space stacks up favourably against the 10-year average of 233,220sq m, exceeding that figure by 50,000sq m in the year to January. However, the number of consents issued during the same period, which stood at 184, was well below the rolling 10-year average of 291.
This contrast illustrates the influence of a small number of large-scale projects which have bolstered the quality of office stock across New Zealand.
Ian Little, National Director of Research at Colliers, says the financial headwinds that have plagued the construction sector post-Covid are easing and a growth cycle is on the horizon.
"December 2024 was the second consecutive quarter that inflation has been recorded within the target band of 1 to 3 per cent, which will be a mitigating factor for rising building costs," Little says.
"The Reserve Bank of New Zealand has responded to this by cutting the Official Cash Rate to 3.75 per cent and has signalled further cuts, which will potentially see the benchmark rate reaching 3.1 per cent by the end of the year."
Easing inflationary pressures are mirrored by improving confidence in the building sector.
The New Zealand Institute of Economic Research s latest Quarterly Survey of Business Opinion showed sector confidence at its highest level since March 2017, with a result of 29.
"Confirmation that the economy returned to growth in the final quarter of 2024 will further bolster confidence and, importantly, is likely to precipitate an increase in occupier demand," Little says.
The latest Ministry of Business, Innovation and Employment National Construction Pipeline Report projects New Zealand s construction pipeline will grow by approximately 15.5 per cent between 2025 and 2029, reaching $63.7 billion.
The long-term outlook for development activity in New Zealand is positive and businesses are now seeing the light at the end of the tunnel after a challenging period for the New Zealand construction sector.
- Supplied by Colliers
