Commercial property developers have abandoned construction projects due to lack of finances and market uncertainty, new research shows.
Commercial property developers have abandoned construction projects due to lack of finances and market uncertainty, new research shows.
Figures from Reed Construction Data show more than $60 billion of new construction and infrastructure developments were “deferred” in the first 10 months of this year.
More than 3400 projects, including apartment towers, office buildings, shopping centres and hotels, have been delayed. This is five times the number of projects that were deferred in 2007.
Property group Becton says it will reduce its portfolio from 37 projects to 10, while Brisbane developers Metacap, Austcorp and APH have delayed projects worth more than $2 billion combined.
The NSW Government has also delayed submissions on the $4 billion Barangaroo project, due to what Planning Minister Kristina Keneally calls “extraordinary volatility in global financial markets”.
Managing director of Reed Construction Data, Rob Wild, says the main reason behind the slowdown is obtaining credit.
“Developers like to get a pre-commitment, especially in flats and units, of something in the order of 70% to 75% – that’s difficult. Companies may not be able to get the finance and may not be able to support the finance even if they do get it.
“The developers themselves are also having trouble raising money. Even if they are successful, there is a lot of uncertainty. I do think a lot of these projects will come back next year, and if the credit market starts to free up a bit. But at the moment they’re hesitant.”
Wild says new projects that came on stream for 2008 total $198 billion, down from $236 billion in 2007.
“You have to put it in context. Yes, more projects were started, but we’ve got five times as many projects deferred and fewer new projects coming in. So even though there are a lot of starts, the pipeline is getting thinner. A lot of these projects will come back on stream, but that is dependent on the credit market.”
But David Green-Morgan, research director at DTZ Research, says commercial property won’t see a recovery for “probably 12 to 18 months”.
“If a building or a development hasn’t already started or already doesn’t have a significant pre-commitment in place, I doubt if we’ll see construction in 2009. We’re looking at the beginning of 2010 at the earliest.
“In Australia, we’re just at the beginning of the downturn in the economic cycle, while employment tends to increase at the end. We’re probably going to see employment hit its peak in early 2010 – that is what’s going to delay the new development cycle.”
The data shows industrial property is also being hit. The ING Industrial Fund has scaled back forecasts of its development pipeline to 40%, while Jones Lang LaSalle says new industrial completions will drop 20% over the next year.
But while Green-Morgan says industrial property won’t be hurt as much as the commercial sector, developments will still be scaled back.
“Industrial property is also linked to manufacturing, exports and imports markets, so the demand for industrial space is naturally declining.”
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