The Hot IssuesJust a year ago, we reported in the findings of this survey that 54% of survey participants were so affected by the skills shortage that they ranked it as the hottest issue. Now, just a year on, the world couldn’t be a more different place. The skills shortage has dropped so far down the list of hot issues that it ranked just 4% this survey. Similarly, last survey’s hottest issue Construction Costs, Risks & Margins fell to its lowest rating since the commencement of the survey – now just 1% (down 29%). The term 'anxiety' became a catch cry for participants this survey. Participants expressed fears of an impending recession, concerns about finance, falling business sentiment, reduced access to finance, falling forward workload and the global economic downturn as the hottest issues.The economy moved into top place with 24% of respondents considering Economic Contraction the hottest issue in the industry at the moment, running an equal tie with Reduced Construction Activity/Forward Workload (24%). Anxiety about Obtaining Finance came in at a close second this survey, with 19% of participants rating it as the second hottest issue in the industry at the moment, while Interest Rates altogether dropped off the list as a concern – previously 12%.

Problems in the Industry91% of participants now feel that there are problems in the industry, up 9% on last survey. The credit squeeze and economic slowdown featured as the greatest problem in the industry for 33% of participants (up 14% since last survey, and 20% during the past year). In a similar vein, a further 9% cited that business sentiment is now the greatest problem currently faced by the industry – a new category for this report. Participants said that the inability to raise finance for projects due to the current state of the credit markets is directly affecting the feasibility of projects. Making its debut on this list for the first time is the Shortage of Projects, which now ranks as the second greatest problem in the industry at the moment, according to 17% of respondents.Industry concern has eased markedly toward the Skills Shortage, which slid 20% since the last survey. Previously considered the greatest problem in the industry, the Skills Shortage now ranks fourth, accounting for just 12% of responses. While industry players have been grappling with escalating costs for some years now, this survey saw an instant reprieve. Concern about Costs slid 19% since last survey (when it ranked as the second greatest concern) to reach just 9% this time around. Planning approvals remained unchanged, at just 1% of responses – overshadowed by the more immediate economic environment.

CONSTRUCTIONSENTIMENT MONITOR

Findings Report SevenMarch 2009

Executive SummaryOur industry is in the midst of enormous change, pressured by both domestic and global challenges. With world events changing on almost a daily basis, staying on top of the current sentiment is more important than ever, which is why we’ve increased the frequency of our surveys from twice yearly to quarterly. In this Findings Report, we explore the results of our seventh Davis Langdon Sentiment Survey. During the past three months, Davis Langdon’s Construction Sentiment Index fell 19 points to reach 51 – leaving the index at its lowest point yet.We hope the findings of this interim update are insightful for you and we look forward to keeping you up to date with new results again in June 2009. Key Findings

'Anxiety' driving sentiment lower•Economic concern – tops hottest issues •Falling workload – takes a front seat•Competition heats up•Manufacturing, Tourism and Retail at rock bottom•

Costs

Planning Approvals

Government Issues

Skills Shortage

Lack of Pre Commitments

Shortage of Projects

Business Sentiment

Economic Slowdown

Industrial Relations

Credit Squeeze

Miscellaneous

Obtaining Finance

Economic Contraction

Miscellaneous

Business Sentiment

Government Issues/Stimulus

Skills Shortage & Trade Shortages

ESD & Carbon Trading

Industrial Relations & Federal Government Workplace Legislation

Reduced Construction Activity/Forward Workload

Quality of Construction & Documentation

Construction Costs, Risks & Margins

New Business - SlidingHas the level of new business in your company changed in the last six months? Conditions are changing rapidly in terms of the level of new business being experienced. For the first time since the commencement of this survey, those reporting that their level of new business had diminished in some way increased 32% to account for 50% of all respondents. Just 11% of respondents reported that new business had increased significantly – 16% down on the results of our last survey. One quarter of participants reported their levels of new business remain unchanged.

Industrial Relations Takes a TumbleHow do you perceive Industrial Relations?Sentiment toward Industrial Relations took a slide since our last survey, now with 11% of respondents agreeing that industrial relations are Bad to Very Bad at the moment (up 8%). Sentiment has worsened 10% on the results from a survey we conducted at the same time last year, when just 1% of respondents perceived Industrial Relations to be Bad to Very Bad. Worsening conditions are expected looking forward, with 26% of respondents anticipating Bad to Very Bad Industrial Relations in the next 12 months.

Greatest Obstacles in Building DevelopmentWhat are the greatest obstacles in the building development process?For the second consecutive survey, sentiment worsened toward obstacles in the building development process.How things have changed. Just one year ago respondents reported that Obtaining Finance was the slightest obstacle in the building development process. There is indeed wisdom in crowds. Last survey our participant’s predicted, fairly accurately, that Obtaining Finance would be one of the top two obstacles in building development in the next 12 months. Now, just six months later, it has already reached the number one obstacle. In terms of sentiment, it doesn’t get any worse. This issue has ranked the most serious concern of any topic we have covered since the commencement of the survey. But there is some light on the horizon, with participants expecting the situation to ease slightly during the next 12 months.Obtaining pre-sales is now the second greatest concern to participants – leaping seven places since last survey. Participants feel that this situation will continue to deteriorate further during the next 12 months. We expect it will remain in the top two obstacles for the short to medium term.The Risks of Development remained in the top three obstacles since last survey, however participants have indicated that they expect this to improve marginally during the upcoming 12 months.Concerns about the Costs of Construction fell six places, down from number one obstacle last survey. There is a strong consensus among participants that this will continue to ease significantly across the upcoming year.Interest Rate Volatility, which was previously considered the third greatest obstacle to building development, dropped seven places to become the slightest concern. Our survey participants hold a general consensus that interest rates will continue to ease further during the upcoming 12 months and we anticipate that they are unlikely to pose much of an obstacle for some time.

0 0 2

24

71

2

11

78

11

3

81

16

Very Bad Bad Good Very Good

During the past 6 months

At the moment During the upcoming 12 months

January 2008 July 2008

Increased significantly

(>10%)

0

10

20

30

40

%

Increased slightly

Remained the same

Diminished slightly

Diminished significantly

(>10%)

January 2009

At the moment

1 2 3 4 5 6 7 8 9

1 - Obtaining Finance (6)2 - Obtaining Pre-sales (9)3 - Risks of Development (2)4 - Obtaining End-user Pre Commitment (5)5 - Low Sale or Yield Expectations (-)6 - Obtaining Town Planning Approval (4)7 - Costs of Construction (1)8 - Availability of Appropriate Sites (7)9 - Time to Construct (8)10 - Interest Rate Volatility (3)

Gre

ates

t ob

stab

leS

light

est

obst

able

10

During the next 12 months(n) Place in Sentiment Report 6

Government ProjectsWhat government factors do you think affect the industry?Participants agreed that the Governments’ stimulus package (and monetary policy in general) is the greatest influence the Government has on the industry at the moment. Exposure to Government projects contracted slightly (down by 6%) with 74% of the industry now reporting that their business is in some way involved in Government projects. Of those who are involved in Government work, State Government work continues to be more dominant – making up 50% of these respondents workload (up 10% on last survey). On average, Federal Government projects accounted for just 10% of participant’s total business (unchanged on last survey).

Procurement PreferencesWhat is your preferred method of procurement?Negotiated contracts are by far the preferred favourite, with 29% of respondents citing them as their preferred procurement method (up 1% across the past year). Conventional Lump Sum contracts are also becoming increasingly preferred as the industry continues to become more competitive – up 6% during the last 12 months.Participants continue to lose interest in Partnership/Alliance contracts, which fell a further 5% in popularity across the year and are now preferred by just 9% of participants.

Staffing ExpectationsThinking about your own staffing levels, how have these changed?Permanent staffing levels are still reasonably strong given the current market conditions. 41% of respondents reported their permanent staffing levels remained the same (up 10% since last survey) while a further 16% reported increases of up to 20% in permanent staff. Nevertheless, 33% reported that their levels of permanent staff had decreased by up to 20%.The outlook for the upcoming six months indicates that participants expect a fairly subdued period ahead, 38% expecting staffing levels to remain the same and 35% anticipating decreases in permanent staffing levels (by up to 10%).Contract staffing is still expected to be the worst hit – with 53% of participants expecting their contract staff numbers to decrease during the upcoming six months. Just 6% expect contract staffing numbers to remain the same.

Skills ShortagesSkilled trades shortages – which areas are worst affected?Skills shortages made some subtle fluctuations since last survey, with some trades and professions performing unexpectedly – signalling more uncertain times for the industry. Nevertheless, shortages were reported by fewer than 30% of respondents, which is a first for the survey. Professional Design Services shortages continued to ease during the past six months (down 5.8%), now at their lowest level since the commencement of the survey and affecting 24% of participants. The availability of Construction & Project Management Services worsened fractionally (up 1.3%) with 22% of respondents now reporting a shortage. Among the skilled trades, shortages of Plumbers, Electricians and Bricklayers all worsened, becoming the top three trades facing shortages at the moment. Plumber shortages increased 9.3% to reach 20%, while Electrician and Bricklayer shortages increased 2.4% and 6.2% respectively (to reach 16% and 14%).Participants still blame a lack of training and education in the industry over the last few decades as the root cause of shortages we’ve been experiencing in skilled labour.

16 14 15

38

33 32

41

6

20

3

44

39

Increased by up to 20%

Remained the same

Decreased by up to 20%

last six months next six monthsPermanent Staff

last six months next six monthsContract Staff

%

PPP

Elections

Budgets

Planning & Approval Process

Miscellaneous

Industrial Relations

Tender Process

Risk Allocation

Monetary Policy/ Stimulus

Government Bureaucracy

60

50

40

30

20

10

0

Gla

zier

s Con

cret

ers

Met

al W

orke

rs

Plu

mbe

rs

Tile

rs Form

Wor

kers

Bric

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ers

Car

pent

ers

Pla

ster

ers

Ele

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ians

Pro

fess

iona

l Des

ign

Ser

vice

s

Con

stru

ctio

n &

Pro

ject

Mgt

Ser

vice

sJanuary 2009

July 2008

%

Competition Heats UpHow do you rate the level of competitiveness at the moment?Competition among General Contractors and Sub Contractors has reached its highest since the commencement of this survey four years ago. Nationally, 90% of General Contractors and 84% of Sub Contractors are experiencing Fairly to Extremely Competitive conditions (up 21% and 24% respectively).We expect that these keenly priced General Contractors have been factoring in a more competitive Sub Contractor base for some time, and pricing accordingly to secure their book. If Sub Contractor competitiveness continues to heat up at this rate, Major Contractors may still have opportunity to manufacture a degree of margin by the time projects come on line.

The Next 12 MonthsWe asked participants to share their views about the segments that will contribute to growth during the upcoming 12 months.Health remains firmly in focus, with 90% of participants considering it the sector most likely to contribute to growth in the construction industry over the next 12 months (up 16% on last survey).The Civil and Resource sector also crept up, now with 77% of respondents considering it as a major contributor to growth over the upcoming 12 months (up 7%) – not entirely surprising given the volume of money expected to enter these sectors as a result of the Government stimulus package.Interestingly, Restoration and Refurbishment entered the top three for the first time since the commencement of the survey, indicating to us that companies are taking the opportunity to refurbish while the market is flat, in anticipation of market recovery.At the bottom of the rung, the three sectors that will contribute least to growth in the upcoming year are Manufacturing, Tourism and Retail.

If you would like to discuss the details of this report further, please contact Rachel Kelloway, Davis Langdon’s National Research Manager, by email: rkelloway@davislangdon.com.au or by phone: 03 9933 8800

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Fairly Uncompetitive

Fairly Competitive

Not Competitive

Extremely Competitive

11%

40%

49%

0%

13%

3%

29%

55%

Contractors Sub Contractors

Health

Civil and Resource

Restoration and Refurbishing

Retirement and Aged Care Accommodation

Multi Unit Residential

Office

Retail

Tourism

Manufacturing

%20 40 60 80 1000

Most Least

Which segments do you think will most contribute to growth during the upcoming 12 months?