Feeling StimulatedWe took a different approach this survey and questioned participants about whether their businesses had experienced any changes since the Government’s economic stimulus package was released. Just over half of our participants reported experiencing some form of impact, with 52% of respondents answering 'yes’.Most respondents reported an increased workload, particularly in the Government sector, and in delivering the Building the Education Revolution (BER) schools programme. Some said that they had been very busy in disciplines which they would otherwise be short of work in, while others reported radically higher volumes of work in institutional projects. Respondents agreed that the extension of the First Home Owners Boost had also lubricated the way for maintaining unit sales volumes on projects during this period. But it hasn’t all been good news. Some 14% of participants feel they have been negatively impacted by the stimulus package. They claim that it has sparked a sudden shortage of labour and have noticed the reducing availability of certain trades. They also feel it has sparked rising tender prices.However, the greatest complaint by far was in relation to professional staffing. Some practices reported that the design rush is causing many staff stress issues. Those who had already begun downsizing long before the flood of stimulus work entered the market say that longer hours are being worked by remaining employees and that the lower staff numbers had meant increased workload for remaining staff. Problems in the Industry75% of participants now feel that there are problems in the industry, down 10% on last survey and down a surprising 16% since the start of the year.Now at its lowest since the commencement of the survey four years ago, it firms up our theory that participants have washed their hands of Australia’s economic woes and don’t consider these problems as 'industry' problems.The lack of available finance still ranks as the greatest problem in the industry according to the majority of participants, followed very closely by the lack of work and shortage of projects. Both of these issues are so categorically intertwined that in some instances the responses were impossible to separate one from the other. Together they make up 51% of all responses.

CONSTRUCTIONSENTIMENT MONITOR

Findings Report NineSeptember 2009

Executive SummaryDuring the past three months, Davis Langdon’s Construction Sentiment Index improved 5 points to reach 64 – indicating that sentiment is continuing to improve.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 December 2009.Key Findings• Stimulus impacts on more than half• Staffing levels on the increase • Sentiment continues to improve • Finance squeeze – still our greatest problem

Yes

No

Has your business experienced any change since the economic stimulus package was released?

Skills Shortage

Planning Approvals

Costs

Stimulus Package

Credit Squeeze, Economic Slowdown & Shortage of Projects

Industrial Relations

60

80

100

120

020

40

140

160

May

07

Nov

06

May

06

Nov

08

May

08

Nov

07

Sep

09

Jun

09M

ar 0

9

Davis Langdon Construction Sentiment Index

Sentiment Findings Report Nine

Problems in the Industry (cont'd)Skills Shortages ticked upward again, after several consecutive falls over the past twelve months; now accounting for 15% of responses (up 5%). Planning Approvals returned from the dead, with 10% of participants citing them as a problem in the industry (up from zero last survey). The Government’s capital spending took a hit, accounting for 21% of all responses. Participants entered into a tirade over the unreasonable speed-to-market that the stimulus package has thrown at the property industry. A number of participants complained that firms had been engaging contract staff to deal with the load, however they feel longer term job creation could have occurred had the projects been spread out over a longer period. One participant said that had the projects been spread out over, say an 18 month period, then it would have been feasible for their firm to put on permanent staff. Of course, we feel obliged to mention that the stimulus package’s speed-to-market appears to be the only thing separating Australia from a recession, but we also recognise that this friendly lesson in economics will go nowhere towards soothing the debate. For the Government, it seems to be a case of damned if you do, damned if you don’t.

New Business – Back on the MendHas the level of new business in your company changed in the last six months? We’ve started to notice an about-turn in the level of new business which participants are reporting. This time around more than a third of participants reported their levels of new business remained unchanged, up 10% on last survey to reach 35%.29% of participants reported that their level of new business increased in some way, up 6% on last survey and certainly performing better, and sooner, than we might have otherwise anticipated.Interestingly, those reporting that their level of new business had diminished in some way decreased to account for 37% (down 17% on last survey), which sends a clear message that the worst might well be over. Of these respondents, there was a promising shift from those reporting that new business has diminished significantly to now account for 18% of all respondents – almost halving since the last survey.

Staffing Expectations – The Worst is OverThinking about your staffing levels, how have these changed?There’s been a decided turnaround in staffing expectations since last survey, with a growing anticipation among participants that permanent staffing levels will increase over the upcoming six months. 40% of participants reported that their permanent staffing levels would increase by up to 20% within the upcoming six months, up 25% on expectations held just three months ago. This is an incredibly optimistic outlook given that almost a quarter of participants have already seen their staff numbers increasing, with 24% already reporting that their permanent staffing levels had increased by up to 20% during the past six months (up 2% since last survey). Just 12% expect staffing levels to decrease.Based on these findings, we’re fairly confident that the worst is over. It looks like last survey’s ominous 39% decreases in permanent staffing levels are as bad as it was going to get – a far cry from some economists’ dire predictions that unemployment will skyrocket into double digits. This leads us to believe that the industry is looking to hunker down and ride out the tough times.Contract staffing still looks set to remain in the holding pattern that it’s been in for the past six months, with more than half of our respondents expecting their levels of contract staff to remain unchanged during the upcoming six months, up 9%.

Diminished in some way

Increased in some way

Remained the same

25%

23%

52%

35%

29%

37%

June 2009 September 2009

24

40

17

38

26

8

36

58

13

19

53

12

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

%

Sentiment Findings Report Nine

The Great Productivity BoomInterestingly, 38% of respondents anticipate that their permanent staffing levels will remain unchanged in the upcoming six months and we think there’s more to this than meets the eye. During the first signs of the economic fallout in mid to late 2008, Australia’s property and construction firms went into defensive mode, shoring up their workforces, retrenching under-performers and paring back to the bare essential staff. Far from being economic casualties, many of these retrenchments occurred when business was still strong and before any sign of the economic fallout hit the balance sheets.The staff that were kept represented the Darwinian theory at its best. These were the toughest, the brightest, the most resilient; those who had proven themselves and most likely to keep the ship afloat during the impending upheaval. With this in mind, these firms entered into the difficult period in full fighting mode – leaner, more agile and ready for tough times. Workers were warned that working harder would be the ‘new norm’, that pay increases would be a thing of the past, and that pay cuts would be ‘for the lucky ones’ who still had a job at all.But what now? As things pick up, these lean ‘dream teams’ continue powering on, working harder and smarter. A new level of efficiency has been reached. This is productivity at its zenith and employers know it! They have realised what efficiencies are possible and plenty of them are indicating here that they won’t be led down the hiring path anytime soon.

Skills Shortages – State of FluxDo you feel the industry is experiencing a skills shortages at the moment? 44% of respondents now feel that the industry is experiencing a skills shortage. Shortages have worsened across most trades during the past quarter. Carpenters and Electricians both ranking equally, with 8% of participants experiencing shortages, up 3% and 1% respectively. One of the worst affected were Tilers, who previously were unaffected by shortages. These shortages leapt to 5% during the three months to July.Plumbers and Metal Workers were the only two trades to experience declining shortages during the period, both easing by just 1%. Shortages of Glaziers and Bricklayers both remained stable at 3% and 6% respectively. Shortages in Professional Design Services fell for the fifth consecutive period, now at just 9%, down 2% since the last survey. It's hard to believe that just 18 months ago, 55% of the industry reported experiencing shortages – how times have changed!Shortages of Construction and Project Management services took a turn for the worse, up 3% on last survey to reach 10%, making it the worst affected of all trades and skilled labour at the moment.

Greatest Obstacles in Building DevelopmentWhat are the greatest obstacles in the building development process?Overall, sentiment toward obstacles in the building development process took another baby step toward improvement, up 1.7% during the past three months.Obtaining Finance remains the number one obstacle in the building development process, still ranking as the most serious concern of any topic. However, participants do anticipate that the situation will begin to ease slightly during the next 12 months.Obtaining End-User Pre-Commitments also remains firmly in second place as the second greatest obstacle in development at the moment – a situation which participants expect to ease slightly as we move into the next 12 months.The Risks of Development snuck up a place to become the third greatest concern to participants. Obtaining Pre-sales became less of an obstacle for participants, falling another place since last survey to become the fourth greatest obstacle in building development. This obstacle was as high as second place at the beginning of the year and participants have indicated that they expect this issue will continue to ease further during the next 12 months. Interest Rate Volatility remains the slightest concern, however our survey participants hold a general consensus that interest rates will start to worsen again during the upcoming 12 months.

30

20

10

0

Gla

zier

s Con

cret

ers

Met

al W

orke

rs

Plu

mbe

rs

Tile

rs

Form

Wor

kers

Bric

klay

ers

Car

pent

ers

Pla

ster

ers

Ele

ctric

ians

Pro

fess

iona

l Des

ign

Ser

vice

s

Con

stru

ctio

n &

Pro

ject

M

anag

emen

t Ser

vice

s

June 2009

September 2009

%

1 2 3 4 5 6 7 8 9

Gre

ates

t ob

stab

leS

light

est

obst

able

10

At the moment

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

During the next 12 months(n) Place in Sentiment Report 8

Procurement Preferences – Safety in NumbersWhat is your preferred method of procurement?It remains a sign of the times that Conventional Lump Sum contracts are still on the top of the heap when it comes to preferred methods of procurement. Almost half of our respondents (49%) now cite Conventional Lump Sum contracts as their preferred method of procurement, up 22%.This is not too surprising. Last survey we said that, as the industry continues to become increasingly competitive, we expected this trend to continue – and we still do. Smart operators realise that the tide is turning and now is the time to lock down a price to secure certainty moving forward. Negotiated contracts are still coming in as the second most preferred method, with 32% of respondents citing them as their preferred procurement method, up 9% since last survey. Slipping into the top three this time around is D&C, with 18% of respondents preferring this method.

Planning – Spikes AgainIs the timeframe for obtaining town planning approvals excessive or reasonable?The timeframes for obtaining planning approvals took a hit this survey, with respondents reporting excessive or protracted timeframes spiking again to reach 71%, up 9% on last survey.Participants experiencing reasonable timeframes continue to be the exception rather than the rule, accounting for just 19% of respondents, down just 1% on last survey.Of those experiencing delays, 88% said they had experienced timeframes protracted by 30% or more (up 5% since April).We wonder whether the new ‘fast track’ planning rules being adopted by some states and local governments will start to make an impact on this situation anytime soon. From next survey onward, we’ll be monitoring this issue and delving deeper into whether this type of legislation makes an impact.

CompetitionHow do you rate the level of competitiveness at the moment?The trend towards hotter competition has taken an about turn this survey. Competition among General Contractors saw the greatest movement this time around, with 90% now experiencing Fairly to Extremely Competitive conditions, down 5% in the three months to July. By way of comparison, Sub Contractors experiencing Fairly to Extremely Competitive conditions fell just 1% to reach 88%.Those reporting that General Contractors are ‘not competitive’ or ‘fairly uncompetitive’ doubled since last survey, increasing to 10% (up 5%).It appears that the Government’s urgency in rolling out the stimulus package has made an immediate impact on the levels of competition being experienced by contractors. We anticipate this to show through in an even more pronounced way by the time our next findings report is unveiled.

Fairly Uncompetitive

Fairly Competitive

Not Competitive

Extremely Competitive

8%

27%

63% 57%

2%

31%10%

Contractors Sub Contractors

2%

62

71

19

11

20 18

Protracted or Excessive

Reasonable Unsure

June 2009 September 2009

Timeframe for obtaining approvals Protracted by how much?

%

June 2009 September 2009

>50%0

10

20

30

40

%

30-50% <30%

50

Sentiment Findings Report Nine

Con

vent

iona

l lu

mp

sum

49

Neg

otia

ted

cont

ract

32

D&

C18

D&

C v

ia a

nov

ated

des

ign

15

Con

stru

ctio

n m

anag

emen

t13

GM

P12

Par

tner

ship

/ Alli

ance

11

Man

agin

g co

ntra

ctor

10

PP

P6

%

The Next 12 MonthsEach survey we ask participants their views about the segments that will contribute to growth during the upcoming 12 months.76% of participants agree that Health will make a major contribution to growth, taking it to first place as the segment most likely to contribute to growth in the next 12 months.The Civil and Resource sector remains a very close second, with 75% of participants agreeing that it will be a major contributor to growth in the upcoming 12 months, up 2% in the past three months.Manufacturing, Office and Tourism are all vying for last place, as the sectors least likely to contribute to growth, with 84%, 82% and 81% of participants agreeing that they are the sectors least likely to contribute to growth during the year ahead.

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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Retirement and Aged Care Accommodation

Health

Civil and Resource

Restoration and Refurbishing

Multi Unit Residential

Manufacturing

Retail

Office

Tourism

%20 40 60 80 1000

Most Least

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