The trends in non-res consents towards newer and bigger

We occasionally get requests for pieces of data that we don’t routinely forecast. This article looks at some work we’ve been doing around non-residential consents to provide a greater level of detail for subscribers to our forecasts, looking at the split of consents into new buildings and alterations and additions (A&A), as well as the number of non-residential consents being issued.

No growth in alterations over time

Throughout the ups and downs of the building cycle, it’s well established that the volume1 of consents for new non-residential buildings tends to be a lot more variable than consents for non-residential A&A. This outcome makes sense when one considers that new buildings will typically be larger projects, and they are therefore more likely to be put on hold when market conditions are weak. In contrast, there is likely to be a baseline of A&A work that takes place almost irrespective of market conditions.

However, Chart 1 shows that although the volume of new non-residential consents has tripled over the last 28 years, the volume of non-residential A&A consents is virtually unchanged. A&A activity has had some ups and downs, but its share of total non-residential consents has dropped from 46% in mid-1995 to just 22% now.

Chart 2 shows that this trend towards new buildings has been consistent across all non-residential building types. This trend makes sense, as rapid technological change has affected the demands of building occupiers across a variety of industries. For example, logistics and distribution businesses are typically operating with much greater stud heights than previously, so older buildings cannot be reworked to meet their requirements. Retail facilities are heavily slanted towards malls and large-format stores, and these are often built new rather than extending existing facilities. Office requirements have also changed to be more flexible and open-plan over the last 40 years, and they are continuing to evolve post-pandemic as new patterns around virtual meetings and working from home are bedded in.

With this background in mind, our modelling shows that the forecast decline in non-residential consents over the next 6-12 months is likely to be concentrated in new buildings. However, over the medium-term, the trend towards new buildings dominating total non-residential consents is expected to continue, with new consents surpassing the 2021 record of 78.5% of total non-residential consents by the end of the forecast period in 2028.

The surprise decline in the number of consents

In contrast to the upward trend in the total real value of non-residential consents over time, the number of non-residential consents has generally been flat or falling (see Chart 3). As a result, the average value of a new non-residential consent has risen from about $280,000 in 1991 to almost $2m in the last 12 months, and the average value of a non-residential A&A consent has lifted from just over $180,000 to over $450,000 across the same period (all figures in June 2023 prices).

It appears that we are increasingly only bothering to do building work (or, at least, get consents for it!) if the project is big enough to make it worthwhile. There might have been some changes to consenting rules during the last 30 years, but the only time when there looks to have been a possible step change in the number of consents is during 2009 following amendments to the Building Act the previous year. Otherwise, the variation in the figures over the last 13 years looks to be part of a clear downward trend in consent numbers.

Our modelling suggests this trend will continue. This result is consistent with the increasing proportion of non-residential building consents that are new buildings, rather than A&A work.

The concentration of non-residential construction activity over time among fewer, but bigger, jobs makes it that much more important for suppliers to get their products specified on projects. Although the overall size of the pie is growing, it’s also being cut into fewer pieces, meaning that missing out on a specific project is likely to have a bigger effect on a firm’s market share than it would have 20 or 30 years ago.

1 The volume of consents refers to the value of consents deflated to remove the effect of building cost inflation.

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