Australia's high-rise residential construction market is showing few signs of recovery with demand for units falling across most of the country, some CBD vacancy rates remaining high and fewer units planned for development, according to Davis Langdon, an AECOM company.

Wary developers are being put off by increasingly hesitant buyers, increased building costs and a restrictive lending market, the report found.

Davis Langdon's Research Manager, Michael Skelton, said lower auction clearance rates combined with data from the Australian Bureau of Statistics showing a drop of 1.7 per cent in the House Price Index for the March quarter, suggested a weaker market.

"While the residential market has generally softened across the country in early 2011, vacancy rates are low and with strained housing affordability, demand for rental properties is expected to remain high," Mr Skelton said.

"These factors point to an opportunity for investors to enter the market, but many buyers are waiting for vendors to cut price expectations.

"Others, particularly first home buyers, have been scared off by interest rate rises and rising household costs."

With reduced workloads in other parts of the building and construction industry, Davis Langdon predicts moderate rises in tender prices over the coming year.

"Uncertainty in the market is expected to drive competition, but this will be balanced out by the need to pass on higher labour and material costs," Mr Skelton said.

Davis Langdon's research showed that the most bullish residential market is in Canberra where a high level of demand for dwellings is driving development and continues unabated.

Canberra's residential construction commencements for 2010 were 39 per cent higher than the previous 12 months and rental growth for units remains strong on low vacancy rates.

Investors continue to purchase off the plan, keen to take advantage of capital growth which is notably higher than other states, the report found.

In Sydney, the construction industry continues towards recovery, although stronger growth is expected in the infrastructure and engineering sectors rather than residential construction.

Construction turnover in Sydney's residential sector appears to have reached the low point in the cycle and building approvals for apartments indicate further activity is likely towards the end of the year.

In Darwin, the high-rise residential market, which has been depressed over the last 18 months, is now starting to show signs of activity again, the report found.

Contracts have recently been let on a few larger projects while a number of delayed projects, mostly low to medium quality, are now under construction as well as a number of affordable units.

In Queensland, the widespread floods earlier this year appear to have knocked confidence out of the market and house prices have fallen at a higher rate in Brisbane than anywhere else in the country.

Although there are signs of a recovery in south-east Queensland, the multi-unit residential market remains weak and developers are concerned about infrastructure costs and finance.

In Townsville, the extended wet season caused significant disruption across the construction industry during late 2010 and early 2011, but the market appears to be picking up in the dryer months with several large project opportunities on the horizon.

In Cairns, a low volume of residential development activity is keeping tender prices very competitive as the impact of the cyclone damage affects the market.

In Perth, there are early signs that the residential apartment market will recover in the next 12 months as supply is slowly used up at discounted rates.

In Adelaide, several key projects are on the horizon but work is not due to start for some time. Activity in the apartment market also remains subdued. The few projects going ahead are mainly in affordable housing driven by public funds while potential projects from the private sector are yet to be locked in, pending finance or negotiations with subcontractors.

For a copy of the full report, visit http://www.davislangdon.com/ANZ/Research/Research-Finder/LeadingIndicators_2011/June-2011---Outlook/ or contact Meaghan Jones at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or +61 3 9933 8800.

* Davis Langdon, an AECOM company, offers delivery and risk management services for construction, infrastructure and property ownership throughout Australia and New Zealand and internationally. Areas of business activity include Cost Management, Project Management, Building Surveying, Property Consultancy, Verification Services, Certification Services, Access Consulting, Specification Consulting and Urban Planning.

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