Developers confident building activity is poised to rebound

Property developers are expecting conditions to significantly improve from 2025, due in part to reduced financing costs, higher demand and lower supply.

“Development has been slowing over the last two years, reflecting the numerous headwinds the sector has faced. However, recent months have shown initial signs that constraints are easing, paving the way for the start of the next growth cycle,” according to analysis from multinational property group Colliers.

 

“The combination of high financing costs, restricted access to credit, escalating build costs, a cooling economy and reduced demand from end users has made development feasibility increasingly challenging in recent years. This has led developers to adopt a more cautious approach to the market. More favourable conditions, though, are emerging as a cooling in inflationary pressures within both the construction sector and wider economy have prompted the Reserve Bank to begin a cycle of interest rate cuts.”

 

Reduced financing costs

One reason for Colliers' optimism is that financing costs have started falling as cost pressures ease.

 

The Reserve Bank began reducing the cash rate last month, due to a steady reduction in inflation over the previous 18 months. “The reduction in inflationary pressures is evident within the construction sector. Residential build costs have fallen significantly, as highlighted by the latest Cordell Construction Cost Index,” Colliers said.

 

“The Index shows that the cost to build a standard single-storey, three-bedroom, two-bathroom, brick-and-tile standalone dwelling fell by 1.1% in the three months to June. This is the first decline in construction costs since the series began in late 2012.”

 

Higher demand

Another reason for Colliers' optimism is that the downturn in development activity over the past two years coincided with a period of strong migration-driven population growth.

 

This has led to a build-up of demand pressures that “will increasingly exacerbate housing shortages”.

 

Lower supply

While demand has been rising, supply has been falling, according to Colliers.

 

“In the residential sector, the number of new dwellings consented in the 12 months to July 2024 fell by 22% compared to July 2023. The amount of industrial floorspace consented declined by 21% over the same period, with a similar reduction of 23% seen in the retail and hospitality sector.”

 

Outlook

As a result, while Colliers expects economic conditions to remain soft for some time, the group is confident that better times lie ahead for developers.

 

“Confidence surveys are already showing improvements in both business and consumer sentiment, which will, over time, stimulate demand,” Colliers said. 

 

“This, combined with the continued easing of constraints, is likely to drive increased momentum in the development sector during the second half of 2025.”