If you’re active in residential, commercial, or industrial property, you’re likely feeling the pressure of construction cost escalation. Nowhere is this more pronounced than in the retail, fuel, and quick service retail (QSR) sectors.

On the construction side, Western Australia has seen significant cost inflation from 2020 to today. Labour shortages, material supply disruptions, and loose monetary policy drove input, energy, and service costs to record highs. Meanwhile, on the revenue side, rents remained relatively flat, failing to escalate in line with development costs. The result: stagnant fully leased net income paired with soaring project costs, leading many developments to become commercially unfeasible.

Where did it all go wrong?

Reflecting on our firsthand experience managing development across WA, several key factors stand out:

During the pandemic, WA’s 700-day hard border closure (March 2020 – March 2022) halted domestic and international migration, triggering labour shortages and labour cost inflation.
WA lockdowns, social distancing and isolation requirements from early 2020 to late 2022 disrupted business operations, reduced productivity, and backlogged output.
The mining sector offered lucrative wages to attract skilled workers, pulling labour away from construction and inflating costs.

Federal and State grants (HomeBuilder, Building Bonus) created a sudden spike in residential building contracts in late 2020, straining planning systems and trades, causing severe bottlenecks.

Builders under lump sum or D&C contracts faced severe margin erosion during construction, leading to widespread price rise requests and many builder insolvencies.
Fremantle Port disruptions during 2021 caused shipping delays and container cost escalations up to 400% between 2019 and 2021.
Global supply chain shutdowns caused material shortages, further compounding construction cost pressures.
Loose monetary policy globally (money printing and low interest rates) guaranteed an inflationary environment.

What are we doing?

As development managers, we’re more than project deliverers – we are risk managers, problem solvers, and value creators. Pausing activity isn’t always the right move. Here are a few strategies we’re actively deploying to protect margins and keep project momentum.

1. Design to Cost, Embellish Later

Set the construction budget early. Strip design back to its basic form, then embellish with impactful, cost-effective solutions.
Collaborate early with architects, QS, and builders.
Value engineer façades, optimise building levels, and simplify structures.
Modularise services and rationalise materials for cold shell and fuel projects.

2. Reassess Delivery Models

Shift to Design and Construct (D&C) contracts where appropriate.
Tender and secure long-lead items directly and novate to builders.
De-risk critical path delays to enhance divestment timelines.

3. Negotiate Smarter with Tenants

Avoid chasing unsustainable high rents that delay funding and leasing.
Offer incentives like fit-out contributions, longer abatements, fixed rent increases, and performance-linked lease structures.

4. Leverage Government and Planning Incentives

Engage early with local councils to secure rate relief, infrastructure offsets, and fast-tracked approvals for compliant developments.

5. Future-Proof for Operational Efficiency

Design for operational resilience: solar readiness, EV charging, extra services for tenancy splits.
Minimise future onboarding costs and maximise asset flexibility.

The Bottom Line

Developments are under pressure, but challenges create opportunities.
Savvy developers know that building in downturns and leasing in upturns is the pathway to outperformance.
Those who adapt their delivery models, foster strong tenant relationships, and think creatively about risk will be the ones who thrive as the market cycle inevitably turns.
As always, the fundamentals endure: Location. Design Quality. Reliable Builders. Sustainable Tenants. Strong Lease Covenants.
It’s how we adapt to today’s challenges that sets us apart.

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Property Development Under Pressure