The surge in infrastructure projects causes a 50% increase in concrete costs

Victoria's infrastructure pipeline, valued at $78.5 billion, has led to a significant increase in demand for concrete, resulting in higher prices for commercial builders. The substantial increase in concrete costs is a primary factor contributing to a 70% rise in overall warehouse expenses experienced by industrial builders and their clients since early 2020. Although there are indications of a decrease in structural steel costs, Texco Construction reports that the numerous infrastructure projects in the state are preventing a decline in concrete prices.

The cost of installed concrete has risen nearly 50% on a per square meter basis since 2020, impacting the feasibility of projects, according to Tom Bull, Director at Texco. The industry has been partially saved from a complete standstill by higher rents in Melbourne and Sydney, but this relief is expected to reach a limit. In a state that announced a significant infrastructure commitment in its May budget, both steel and concrete contribute approximately 22% each to a standard warehouse project, according to Texco's data based on its projects, e.g. Goodman Group, Dexus, Charter Hall, Stockland, and Aliro Group.

The housing industry is expressing concerns about the potential consequences of the country's decade-long, $80 billion infrastructure spending, fearing the diversion of skilled workers and materials and jeopardizing much-needed housing development. Concrete demand from major projects like Melbourne's West Gate Tunnel is extending into commercial areas, affecting industrial development, according to Mr. Bull.

While some larger developers state that concrete costs alone are not significantly influencing investment decisions, construction pricing has risen significantly on a national level over the past 24 months. Structural steel costs, influenced by global market conditions, reached $8000 per tonne by mid-2022 but have since declined to about $7000. In contrast, concrete costs, more influenced by local dynamics, rose from approximately $84 per installed on-site square meter in early 2020 to $130 in mid-2023, subsequently decreasing 4% to $125.

Concrete costs are already discouraging certain developments, and the anticipated increase in costs when high-rise housing development resumes is expected to further escalate demand and project expenses. Builders have adapted to the pandemic era by establishing closer relationships with subcontractors, particularly in the concrete sector, ensuring realistic and manageable work pipelines for both parties. This signifies a shift from the past, wherein builders would obtain projects without a well-defined subcontracting strategy. Subcontractors now contribute up to 90% of construction work on most commercial sites, emphasizing the need for collaborative planning and communication between builders and subcontractors.