As we approach the middle of the year, our Market Update for Melbourne is one of mixed messages, with some studios reporting busy times, others a great deal of uncertainty and many sitting right in between.
Whilst there are projects proceeding and recruitment happening, there are very few project sectors showing high growth across the board. Specific reasons for projects proceeding are based on individual circumstances which creates a market where you can’t “draw a line” through one project sector and say that it’s strong in comparison to others.
Although many anticipated some project delays prior to the Federal Election, we didn’t view it as an election that would have major positive or immediate impact on the Architecture market specifically. This is with the exception of tax incentives in the Build to Rent (B2R) space, which had been blocked in the previous parliament; for this sector, it will be a matter of when it’s proposed again and what impact it will have.
So, lets focus first on where work is happening…
The majority of practices we speak to are all consistent in that they are busy in concept and feasibility stages across many project sectors. There’s no lack of desire from clients to develop projects, however, there are reduced levels of projects committing into documentation or construction stages, or at the very least, there are long delays before proceeding. Project sectors such as industrial/commercial in data centre and distribution and warehousing have maintained consistent activity, along with the very high-end residential market. Pockets of activity are being seen in the B2R space and higher end boutique apartments, however the majority of these are either location specific or relatively small to mid-scale rather than large scale. Social housing and seniors living has also seen some activity, again, at a relatively small scale. Pockets of work exist in education and health, however there are no widespread increasing trends, and these sectors will depend in part on the State Budget coming up in late May. There are many varied viewpoints around what our State Budget may look like this year. There are also some interesting one-off type projects in early stages, although these are yet to really kick in from a recruitment perspective.
Interior Design studios are experiencing similar varied activity, with some very busy and others uncertain. Retail and hospitality have been solid, along with high-end residential and apartment projects. We are seeing varying degrees of activity in the commercial workplace sectors, and this is generally in smaller to mid-scale tenancies, rather than large multi-level tenancies.
Many are commenting that fees are under pressure and are also experiencing higher levels of competition for projects, particularly in the tender/ bid space.
With the above in mind, we estimate around 20% of our client base are in recruitment mode, 20% fearing further redundancies, and the larger group in the middle are comfortable where they stand with projects for the foreseeable 6+ months, although they will need to see new project commitments occurring in that time.
Prevailing head winds over the past 18 months of high construction costs and varying demand continues to be a point of concern. Delayed decision making and red tape from Government are also factors with projects being delayed or shelved. Interest rates appear to be stubborn and expectations for them to drop are high, however we will need to see a succession of rate decreases before it will have a tangible effect on the broader market. We also need to see greater clarity from Government in terms of the procurement model for new “activity centres” and similar again for the social housing programme.
It appears generally that construction costs have plateaued, rather than continuing to climb, although there’s no real expectation of them pulling back either. As a result, feasibility of projects continues to be a concern, particularly in the build to sell apartment market. Even with demand for residential property at an all-time high, the fundamentals of construction costs meeting buyers financing ability have created issues, not to mention land tax in Victoria on investment properties. These factors continue to hold back development, particularly in Victoria compared to some other states. Having said this, we are talking with some clients who, whilst projects are yet to be committed, are actually concerned about how they will handle the volume of work should the majority of projects in early stages kick off at once. It’s definitely not an environment where the usual rules of demand vs supply dictate overall project activity and as such, it’s harder than usual to predict where, when, and in which sectors construction activity will be focused in the next six to twelve months.
There is much discussion around construction costs, and the impact of large infrastructure projects on wages in that sector compared to the private sector. Whilst many of the infrastructure projects are needed as Melbourne’s population grows, the flow of State Government finance into the infrastructure space and away from other projects is impacting the Architecture market. As one client commented, “there’s a whole lot more Architecture and Interiors in a $2 billion hospital than there is in a $10 billion tunnel”. I’m showing my age here, but perhaps it’s time for a Hawke era “accord” between Government, Union and the Private sector to ensure development can continue evenly across all project sectors, public and private, without artificially skewing construction costs to the detriment of the private sector. I’m sure there are better minds than mine to work through that one!
From a recruitment perspective, we continue to see opportunities available at a strategic level as studios look to strengthen talent in specific areas. There are some good career opportunities available for those with strong client facing skills, who can be part of new business development and client leadership. Also, for project leaders possessing specialist backgrounds in the multi residential, seniors living, health and education sectors. At the other end of the spectrum, we’re seeing contract opportunities come through where short-term requirements need to be covered quickly, and an increased pool of experienced contractors who are available to meet these needs. These contract roles have also become prevalent in cases where resource programming can be difficult for studios with the stop/start nature of some projects, as they progress through technical stages. We continue to see broader roles across studios spanning finance, submission managers, receptionists and studio managers.
With the above factors in mind, we are meeting candidates across all levels who have a wide range of reasons for seeking a new role. Some have experienced redundancy for the first time, where others are confident of their position but are chasing a new challenge and career growth. While the market conditions remain as they are, higher levels of competition remain. In many cases, there is also a higher level of expectation from clients needing specific project backgrounds, software capabilities and overall breadth of skills. In several instances, there have been limited numbers of candidates who have all of the skills and experience that a very specific job description has asked for, so for many on the job hunt, patience, flexibility and perseverance are required as they go through the recruitment process.
Currently, practices that have mid-year salary reviews coming up are uncertain of how to handle salary increases, and this will need to be addressed on a case-by-case basis rather than an across-the-board general increase. Whilst CPI is back close to the Reserve Bank’s target range, we still have the backdrop of cost-of-living pressures that everyone is experiencing, so we anticipate some rigorous conversations around salary increases come review time.
A reminder also that the Superannuation Guarantee contributions will rise from 11.5% to 12% effective 1st July 2025.
We will update our market rate and salary schedules in June when we receive confirmation of Award Rate increases from Fair Work Australia.
In summary, depending on where your studio currently sits with project activity and confidence, everyone will have a different view point of the market based on their own personal situation, and this is reflected in our day to day conversations with clients. Essentially, it’s back to where we started this article; some studios are firing along well, very confident and active, while others are waiting for things to kick off, in some cases, with projects of a substantial scale.
Interesting times as always! Looking forward to seeing what the second half of the year brings!
Bruce Whetters
Senior Partner – Melbourne