The rise of builder-developers in Queensland is not just a short-term solution to current market pressures; it represents a significant shift in how development projects are being managed across the state. With the combination of ongoing labour shortages, higher construction costs, and the limited availability of builders and tradespeople, this trend is likely to persist over the medium-to-long term. According to Michael Nitschke, State Director, QLD at MaxCap Group, the industry's response to these challenges is unlikely to be temporary. We should not be surprised if this shift was to last five to 10 years, and for some developers, longer than that.

"Developers are realising that the challenges facing the construction sector are not just temporary roadblocks. The issues we’re seeing, particularly with labour and availability of skilled tradespeople, aren’t going away anytime soon," says Nitschke. "The labour market is tight, and the cost of construction has escalated to a point where the traditional model of fully outsourcing construction to a third-party builder does not work for a growing number of projects."

"Over the last two to three years, a number of developers have had to take on their own builds due to the collapse of builders or key subcontractors." Nitschke explains. "Now, we are seeing a trend where more developers are proactively expanding their in-house construction capability and becoming fully integrated developer-builders. This is particularly prevalent in the residential apartment sector."

To bolster their internal capabilities, developers have looked to leaders within the construction industry to manage the responsibility of starting and managing construction arms for developers. "These industry professionals are armed with the knowledge and know-how of project delivery," says Nitschke. "By employing someone with a strong track record of managing construction, it allows the developer to continue managing the development process and maintain an arms length or 3rd party approach to managing each project."

In South East Queensland, the most active developers today are those who have embraced this builder-developer model. As Nitschke points out, "The prolific developers across South East Queensland right now are those who manage construction in-house. This avenue does require significant financial capacity, and discipline to manage both aspects of the builder-developer model successfully.

Nitschke and his team have been working with developers over the last 12 to 18 months to assist with their transition to becoming a builder-developer. "In addition to the building capability, and internal management and processes, there’s also a significant amount of financial discipline nvolved in being both a developer and a builder," says Nitschke. "In taking on the role of a builder, you are taking on very different financial responsibilities and payment regimes. Whilst there may be common ownership and possibly cross over in management, the businesses will operate very differently, and have very different financial requirements"

On the demand versus supply in Brisbane, Nitschke says, based on current trends, there is not currently enough capacity to feed the heightened level of demand for new apartments in Brisbane. This position will only be exacerbated once the Olympic works finally begin.

"The demand for new apartments has been evident for the last decade," says Nitschke, who moved to Brisbane from Melbourne around ten years ago. "COVID heightened the demand, but the demand wasn’t lacking before the pandemic. When the demand-supply equation tips so heavily in favour of demand, prices inevitably rise, and that’s what we’ve seen in Brisbane."

Nitschke says that rising prices are as much a function of the rising build costs as the demand. With construction costs at current levels, developers are finding it hard to make medium to high density projects stack at more affordable levels - say $700k to  $1m.  This has seen developers focus on markets where there is demand for higher priced apartments. There has been strong demand in inner city and river suburbs, and developers are more likely to make these feasibilities stack up in the current market."

MaxCap has been working with several high-profile projects and developers across South East Queensland, from the soon to open Mondrian at Burleigh Heads, to the recently completed Awaken Residences by S&S Projects in Rainbow Bay.