Article
How QLD Property Leaders Proactively Manage Risk in 2023
Procore releases discussion paper on the state of QLD construction landscape
The property and construction industry is facing immense pressure due to disruptive changes, including rising costs, cash flow concerns, skills shortages, productivity challenges, and the need for digital transformation.
Indeed, Australia's construction sector is at a critical juncture, with calls to recalibrate and reset the industry amidst mounting pressures. These challenges are squeezing profit margins and placing some companies in precarious positions. However, there are opportunities for improvement.
For starters, technology holds great potential for the industry, as it can transform information into "construction intelligence" to enhance productivity, profitability, and control over daily operations.
These and other hot topics formed the basis for a roundtable discussion between property developers and construction leaders in Brisbane on 8 June 2023.
Hosted by Procore in partnership with The Urban Developer, the roundtable focused on navigating challenges and minimising risks; proactive risk management strategies; and uncovering opportunities on the horizon.
Attendees included;
Mirvac Project Director - Build-to-Rent, Catherine Atkinson
Frank Developments Managing Director, Frank Licastro
KTQ Group Development Director, Jeremy Holmes
Chapter Two Director, Oliver Bagheri
Chapter Two Development Manager, Carl Bond
QM Properties Development Manager, Glenn Rix
Bluebird Founder & Managing Director, Riye Arai-Coupe
Satterley Property Group Development Manager, Andrew Koek
Consolidated Properties Development Manager, Hannah Tohill
Silverstone Developments Development Manager, Luke O’Dwyer
Cavcorp Project Director, Jimmy Huynh
Procore Account Executive, Simon Thompson
Procore Account Executive, Cameron Nicolas
The Urban Developer National Events Director, David Di Marco
The Urban Developer Managing Editor, Taryn Paris
Chapter 1
Key Themes
What emerged from the discussion?
Key issues highlighted included builder shortages; skills gaps; productivity issues; increasing construction costs; and delays in project approvals by local councils.
There was a consensus amongst all business leaders that they must digitally transform businesses, but they’re overwhelmed by the options and don’t know where to start.
Thought leaders expressed concerns about subcontractor reliability; infrastructure and capacity constraints; decision-making paralysis regarding technology adoption; and changing industrial relations.
Participants emphasised the importance of transparency, collaboration, and innovation in overcoming the challenges and navigating the property and construction landscape.
There was a unanimous agreement that through the adoption of change and the successful implementation of viable solutions, the industry can visualise a more intelligent and robust future.
Chapter 2
Digital Transformation and Risk Mitigation
Digital transformation and its potential for risk mitigation emerged as a prominent topic. Thought leaders unanimously recognised the need to transform their businesses and invest in construction technologies to automate processes, reduce costs, and enhance efficiency.
However, many leaders feel overwhelmed by the array of options and struggle to know where to start. A noticeable difference in the comfort levels of larger incumbent businesses and smaller companies regarding digital transformation was observed, with smaller businesses being more eager to embrace the transition.
David Di Marco, The Urban Developer's national events director, emphasised the importance of construction management technologies in achieving cost savings and improving project-level accuracy and visibility.
The discussion highlighted the significance of flashy technologies including AI, drones, and 3D printing, as well as back-end technologies that empower businesses and address issues such as rework and wasted hours on projects.
Efficient data management, enabled by integrated data foundations, can lead to substantial savings, according to Procore’s benchmark report ‘How We Build Now 2023,’ which reveals that 14% of total project spending could be saved through better data management.
“Construction is one above fishing as an industry in terms of adapting to change and new ideas. There’s a tendency to not adapt to change as stakeholders are so focused on the day-to-day and everything they’re doing right now. But obviously, it has to come to a point where that changes. You have to start thinking about these transformations.”
David Di Marco, National Events Director at The Urban Developer
Despite the benefits, the stumbling block to digital transformation is cost, with justifying the expenses and return on investment being stubborn obstacles. However, industry thought leaders acknowledged the need to overcome these challenges to fully capitalise on the potential of technology in the construction sector.
Chapter 3
Cash Flow Challenges and Labour Woes
Not surprisingly, cash flow challenges are a significant obstacle, as revealed by industry thought leaders.
Subcontractors, in particular, face difficulties due to outdated pricing models and financial pressures. The fixed-price model and stringent financing requirements expose subcontractors to sudden financial losses, and in cases where subcontractors go out of business, developers may face delays, increased costs, legal and contractual issues, potential reputation damage, quality concerns, and financial losses. Efforts to support cash flow through fixed-back guarantees have shown promise but can be costly for all involved parties.
Mitigating risk strategies were shared among industry professionals, including engaging in discussions with contractors, implementing measures for fixed plant equipment, and exploring build-to-rent models for increased financial certainty. The conversation also highlighted the potential benefits of modular construction and prefabrication, leading to reduced construction time, less waste, and improved accuracy.
Thought leaders unanimously agreed that the industry is facing severe labour shortages, resulting in increased labour costs. Government initiatives to attract immigrants have had limited success due to high rental prices and low vacancy rates in specific regions. To address these challenges, there is a need for timely relaxation of development approval processes and faster delivery of housing supply to meet the growing demand.
Chapter 4
Lack of Momentum and Productivity Challenges
Industry leaders emphasised the need for increased productivity and addressed challenges such as consulting resourcing, capacity building, subcontractor reliability, and funding certainty.
Luke O’Dwyer, development manager at Silverstone Developments, stressed the importance of maintaining momentum in all construction projects and attracting talent from other regions. He highlighted the impact of delays caused by factors which are outside of the developers control, like weather events and labour shortages affecting productivity.
Delays not only affect timelines but also hinder overall project feasibility which is seeing developments being put on hold. O’Dwyer mentioned the lack of productivity on site due to labour shortages making projects hard to stack up and proceed from the approval stage into construction, discouraging builders from other regions from venturing to Brisbane due to the higher costs.
“We’ve always been lucky in Brisbane - to be considered the ‘small city’ on the east coast of Australia, we’ve always had a very strong growth story, which attracts talent and interstate migration. But now the reality is the skilled labour won’t come from Melbourne or Sydney because of our housing supply and the fact that it is now reported that we are in fact up to 15-30% more expensive to build than down south in some sectors. This is the first time - in my 15-year history in property and development - that I’ve heard of both builders and skilled labour not coming from Melbourne and Sydney to Brisbane as traditionally it was seen as an easier entry into the market. We need more labour to assist in creating more competition in the construction sector again.” O’Dwyer said.
QM Properties’ development manager, Glenn Rix, shared similar concerns, expressing the impact of rising labour fees and the pressing need to address productivity issues in the subcontractor and head contractor market. Driving productivity remains a critical challenge in the industry.
“This issue encapsulates so many things, whether it’s the subcontractor market; head contractor market; or staff and labour. Driving productivity, and continuing to drive productivity, is a real issue that has yet to be fully unpacked in this market.” Glenn Rix, Development Manager at QM Properties
Chapter 5
Consulting Resourcing and Time Constraints
At the same time, participants highlighted the challenge of consulting resourcing due to a shortage of qualified professionals in the industry. This scarcity has led to delayed reports and deliverables, impacting project timelines. Many stressed the importance of improving resource allocation for efficient project execution and timely completion.
Hannah Tohill, development manager for Consolidated Properties Group, voiced concerns about the struggle to find the right people within reasonable timeframes. Although there have been slight improvements, reports and deliverables still take a significant amount of time, primarily due to the lack of available professionals.
“A big challenge we face is consulting resourcing – and simply trying to find the right people to get something done in a good enough timeframe,” said Tohill. “Things are starting to improve, ever so slightly, but still reports and deliverables are taking a really long time. There’s just not enough people to get the job done.”
Jeremy Holmes, development director of KTQ Group, expressed apprehension about the diminishing choice of contractors in the industry, which could ultimately impact the supply chain, purchasers and end customers, resulting in fewer options moving forward.
“The scary part is we’re leading to a complete lack of choice around contractors– how we get subcontractors, talent and staff. We’re almost moving into a monopolised world in the construction phase in terms of who can build certain jobs. I think that's going to really hurt the supply, our purchasers, and our end customers, who are going to have a lack of choice moving forward.” Jeremy Holmes, Development Director at KTQ Group
Chapter 6
Back to Basics: Reviving Efficiency and Collaboration
To recalibrate and overcome the pressing challenges, the construction sector must prioritise collaboration.
Industry experts stressed the importance of early involvement of all stakeholders to optimise building designs and construction processes for cost-effectiveness. While there might be resistance to change, embracing new ideas is crucial in a market with rising costs and dynamic conditions.
The property and construction industry needs to return to fundamental principles and foster a common purpose in their collaborative efforts. Adapting to change and forging new ideas will be crucial in ensuring resilience and success in the face of evolving challenges. The involvement of financiers, contractors, and builders in developing effective risk mitigation strategies is paramount for the industry's future success.
What’s more, the discussion emphasised the importance of technology and financial resilience in achieving long-term success in the property and construction industry. Adopting construction management platforms and tools can help address cash flow challenges and support smarter decision-making. However, more education is needed to raise industry awareness about the value of data insights.
Chapter 7
Building a New Future
Industry leaders emphasised the significance of adopting construction management platforms and tools to support smart decision-making and cash flow management.
But they also acknowledged the need for further education to raise industry awareness about the value of data insights that can elevate businesses to a higher level of maturity.
If anything, technology was hailed as a valuable 'hedging tool,' helping property and construction companies manage fluctuating costs with accurate and up-to-date data.
It’s these and other solutions – along with the potential and promise of today’s construction technologies – that are paving the way for a recalibrated future in the construction and property realm, attendees agreed.
“I’m incredibly optimistic about the industry because from crisis comes innovation and opportunities,” according to Bluebird managing director, Riye Arai-Coupe.
This powerful sentiment was shared around the room.
“Brisbane, without a doubt, has always had a sense of ‘cautious optimism’ regardless of whatever challenges it faces,” according to The Urban Developer’s Di Marco. “Although the negative pressures are impacting everyone in the industry, it doesn’t look like anyone is giving up hope. You’re still keen to figure it out - and keep pushing.
“Pressure creates diamonds and it’s only going to improve the end result of what you are all doing.” David Di Marco, National Events Director at The Urban Developer
Unanimously, attendees expressed optimism about the industry, recognising that crises often lead to innovation and opportunities. The prevailing sentiment was one of "cautious optimism," with the belief that pressure drives improvement and resilience.