Drop in Building Construction and Outlook in the Industry

There has been a 21% drop in buidling construction in Fiji in the first quarter of 2007 according to the Bureau of Statistics.

The Bureau said that of the F$59 million total construction projects, F$45 million was for the private sector while F$14 million related to the public sector.

F$43 million was for work done on new buildings and capital repairs.

The downturn in the building and construction industry may be attributed to high interest rates that were prevalent towards the end of 2006 and the beginning of 2007.

With interest rates beginning to fall again, we might expect some bottoming out of construction data over the next few months.

In the meantime, construction in Suva continues with work progressing on the Morris Hedstrom Towers, the Tappoo City project, the Great Council of Chiefs Building and Kadavu House. The completion of these large commercial projects would see a huge increase in commercial floor space over the next few months.

Whether there would be demand for such space is yet to be seen but given the current state of the economy, I would expect such demand to be low. This would mean a reduction of office rental rates over coming months.

How much is Government paying for office space?

The Fiji Government pays a substantial sum each year for renting commercial space to house its various Ministries and Departments. This year, the sum expected to be paid by Government in rent will be in the vicinity of F$19 million.

Perhaps a study should be done on whether there would be more long-term benefits for Government to construct more office space and compare it to how much it would pay out in rent in the long term.

Read more on how much Government pays in rent for its offices in an article on the Fiji Times, Wednesday, 6 June 2007, here.

Commercial rental rates in Suva to go down?

With the abundance of office and commercial space coming up over the next few months, and the downturn in demand for them (given the economic slowdown that Fiji faces), one would expect commercial rental rates in Suva to go down over the next few months.

One of the multi-storey buildings to be completed, Kadavu House, does not have its occupancy plans confirmed as yet, although there were commitments to have the Public Service Commission occupy the building.

With the Morris Hedstroms Tower and the Tappoo City complex coming up over the next few months to a year, there will be an oversupply of commercial and office space in the capital.

With the oversupply and inadequate demand, we should expect prices (commercial and office rental rates) to go down over the next few months.