Brisbane's construction “dilemma”

An analysis of Brisbane’s construction challenges of booming demand, workforce shortage, and inflation while still having the Olympics' projects on the horizon.

December 12, 2023

Emerging from the pandemic, the world economy has endured several challenges. From supply chain disruptions to challenging decisions on fiscal and monetary policies to tame inflation and navigating the effects of wars. So, how does all of this relate to Brisbane's construction and property markets?

The economic disruptions in recent years presented challenges to the construction industry, with Brisbane having more specific ones. Like the rest of Australia, Brisbane has suffered from a shortage of construction workers and felt the impacts of inflationary pressures on construction materials; the combination has made construction costs surge. However, additional factors have placed further pressure on the local construction industry. The Queensland government announced a record four-year AUD 89 billion capital program in the 2023-24 state budget. Part of the budget is allocated specifically to constructing venues and infrastructure in Brisbane that will host the 2032 Olympics.

In a high-inflation environment, reducing infrastructure expenditure is one potential solution. Consequently, the Australian federal government has announced funding cuts for some projects. However, in the case of Brisbane, there is limited flexibility. With significant projects linked to the Olympics, there is limited scope to delay these projects.

Brisbane’s real estate markets have shown resilience, and office vacancy rates are tightening, as there are limited options for prime-grade space with strong ESG credentials. While the increase in leasing enquiries and low vacancy typically stimulate new office development activity, economic rents have moved higher and there are only three office towers under construction in the Brisbane CBD. One is already fully leased to the state government, while the other two have secured over 50% pre-commitments, leaving minimal options for tenants. Other approved projects are unlikely to commence without significant pre-commitment.

The rebound in overseas migration should alleviate some of the labour market pressures. However, Brisbane, similar to other cities in Australia, has a tight residential market with low residential vacancy rates. It creates a paradox where more people are needed to build homes and infrastructure, but more homes are required to accommodate the surge in population.

This brings us to the heart of the dilemma: what can be built in a city experiencing demand pressures from all sides?

Brisbane finds itself at a pivotal point in navigating its construction dilemma. Striking the right balance between infrastructure development, providing housing for a growing population, and catering to the need for future-focused commercial spaces are key factors in addressing Brisbane's construction challenges.

Despite the challenges and complexities presented by Brisbane's construction dilemma, there is reason for optimism. Factors like reduced supply chain disruptions and falling inflation are all expected to alleviate stress in the construction sector. Additionally, the cancellation of projects in other parts of Australia may cause a shift in labour supply towards Brisbane, which has significantly more projects underway, improving the availability of labour in the city.