Australia’s DFC member BCI Media Group has published a comprehensive report of the future pipeline of work for the next 12 -18 months, which we aim to summarise here. BCI based their informed analysis on over 100,000 projects researched per annum. They cover building construction projects over $100,000 (excluding detached residential) and civil construction in infrastructure, transport and utilities (excluding mining oil and gas sector). The building construction sector covers 10 categories of aged care, commercial, community, education, health, hospitality, industrial, recreation, multi-unit residential and retail.
They expect the total construction market to show healthy growth of 21.7 percent in 2017/18. However, it is not evenly spread across the country with the following state forecasts:
• New South Wales/Australian Capital Territory (NSW/ACT) +6.8%
• Queensland (QLD) +29.6%
• Victoria (Vic) +54.8%
• South Australia (SA) +0.2%
• Western Australia (WA) -15.8%
And you can see the variation is significant across these major geographical state areas in Australia.
Interestingly, the sources of construction funding have also returned to a more balanced market with private sector funding accounting for about twice as much work as the public sector. The global financial crisis decimated private investment and in Australia, the federal government responded in 2009/10 with billions of dollars in construction through stimulus packages for 9,500 new school buildings and 20,000 new social houses. This dramatically changed the ratio of public to private construction funding in Australia. Since then the balance has swung back to the private sector particularly in the past two years when spending by the government, especially state governments, has been noticeably subdued. However there has now been a significant change in mood with government recognition of the need to invest in infrastructure and transport with major nation building projects being considered in every state and territory.
CONSTRUCTION FORECASTS BY CATEGORY
During 2016/17 there appears to have been a pause in Aged Care development, which could be attributed to the industry adjusting to changes to federal government funding announced in the May 2016 budget. Nevertheless the demographic continues to build and we see recovering construction starts commencing Q2 2017 and continuing through 2018.
Overall prospects are encouraging especially with the accumulation of concept and design proposals over the past 18 months; yet office vacancy rates vary across the country. According to Jones Lang LaSalle in Q1 2017, the vacancy rate was 7.3 percent in Sydney and 23.3 percent in Perth. Additionally economic conditions are still favouring New South Wales and Victoria with prospects for office development still subdued in Queensland, South Australia and Western Australia. The overall outcome was a very healthy 108 percent increase in construction starts above that for 2015/16.
As well as an underlying demand for office accommodation continuing to build there is the special situation being created by the development of the Sydney Metro railway line, with 57,000 SQM in the Sydney CBD and 19,000 SQM of space in North Sydney to be demolished. The outcome as we see it is that New South Wales/ACT commencements will grow in 2017/18 by 34 percent over the prior year (which was already 134 percent higher than the previous year).
2016/17 was an active year for office development in Victoria with commencements more than double those for the prior year. Although we see this settling back during 2017/18 the forecast is still 53 percent above the prior year level.
2016/17 was a good year in terms of commencements with the total climbing 37 percent above the previous year. This was a result of some major projects in the military and legal categories. There are a number of other major projects on the agenda for 2017/18 to take the total value of construction starts 15 percent above the prior year.
Since the surge in activity following the “Building Education Revolution” back in 2009, investment in educational facilities has remained quite subdued. There have been pockets of activity with particular programs such as the high school PPP project in Western Australia and also the Adelaide CBD high school. These managed to push the value of construction starts in 2016/17 18 percent ahead of the prior year.
However, the lack of commitment is expected to continue into 2017/18 with only New South Wales/ACT construction starts expected to be above those of the prior year and the total construction starts dropping back to the 2015/16 levels.
Development in the health category is very dependent on government funding. The priority on investing in built facilities for this sector appears to have declined compared with infrastructure development. As a result, the value of construction starts in 2016/17 fell below the previous year by 29 percent. Nevertheless, there were some significant projects which commenced during the year, including the Calvary Hospital in Adelaide, Karratha Health campus in Western Australia and the Joan Kirner Women and Children’s Hospital in Victoria.
Construction starts in 2017/18 in New South Wales are expected to be 104 percent ahead of 2016/17 with key projects being the Central Acute Services building at Westmead Hospital and the Nepean Hospital redevelopment. However, all the other states are recording declines with the outcome for 2017/18 predicted to be 13 percent lower than the previous year.
With 134 percent growth in the value of construction starts compared with 2015/16, the hospitality category was the star performer for 2016/17. However, much of the increase was attributable to the $2 billion Crown Resort Hotel in Barangaroo. Yet even if that project is ignored, the year-on-year growth would still have been 49 percent.
Prospects still look very promising for 2017/18 with a large number of projects expected to begin. Growth is expected in Queensland and Western Australia, with all other states continuing at historically high levels.
The market for industrial development tapered off significantly in 2016/17. New South Wales and Victoria remained the largest markets, reflecting their stronger economies. Thanks to a couple of very unusual initiatives, Queensland performed quite well but as in Western Australia, the loss of mining-related investment has reduced the baseline activity.
In 2017/18, industrial construction starts are expected to increase by 45.1 percent over the previous year largely thanks to two key projects in the Northern Territory. Growth in New South Wales is expected to be in line with strong growth in infrastructure development, while in Queensland the Pentland bio-energy project is responsible for the spike in 2017.
This category has picked up activity over recent years with substantial investment in sporting venues around the country, including refurbishment of the Sydney Cricket Ground and Rod Laver Arena in Melbourne as well as venues associated with the 2018 Commonwealth Games in Queensland.
This is expected to continue into 2017/18 with New South Wales taking the lead in growing the overall total value of commencement by 29.6 percent, including projects such as the Parramatta Stadium, the Allianz Stadium and SCG upgrade.
The rapid growth and subsequent high-level of construction starts, especially in multi-unit residential from late 2013, is a reflection of the extent of the previous underdevelopment and the growing acceptance of apartment living in Australia.
Although residential has always been the dominant category within the building sector, the recent growth took the share of the value of construction starts to 50 percent in 2015/16 from 29 percent in 2012/13. Residential construction became a significant contributor to growth in Australia’s GDP while our mining investment was starting to decline.
With the work in progress now catching up with demand, the rate of growth has and will continue to subside. We see the level of new construction starts declining 12.3 percent in 2016/17 compared with the previous year and a further decline of 6.6 percent in 2017/18.
With the annual pace of retail sales continuing to decline, it is surprising that this category has been showing outstanding growth in terms of construction starts. However, retail chains such as Aldi must see the upgrading of existing stores and rolling out of new stores as ways of building their share within a “flat” market. Similarly, shopping centre owners and managers look at extending and refurbishing their facilities to attract more traffic for their retail tenants. Also, numbers of overseas retailers, especially luxury fashion brands such as Zara and Coach, have been establishing themselves in Australia with more to follow.
As a result, we recorded a 40.5 percent increase during 2016/17 with Victoria, Queensland and Western Australia all posting good gains. This momentum is expected to continue into 2017/18, forecast to be 15.6 percent ahead of the previous year. New South Wales is the major state for activity; however, Queensland and Western Australia are also expected to be very active.
As a dominant category within the civil sector, infrastructure had year-on-year growth of 91.9 percent for 2016/17 and 31.6 percent expected for 2017/18.
After a number of quiet years, the transport category is forecast to increase in 2017/18 following a healthy improvement of a 62.6 percent year-on-year growth in the previous year.
The 410 percent increase in 2017/18 is attributable to the major projects in New South Wales, Queensland and Victoria. These include the Badgerys Creek Airport, the Brisbane Cross River Rail and the Melbourne Metro Rail Tunnel.
There is a positive attitude toward renewable energy projects. This is evident in the results for the 2016/17 for the utilities category with the value of construction starts jumping 465 percent above the figure for the previous year. The momentum is expected to carry over into 2017/18 with an increase of 34.2 percent expected.
The above forecasts show that Australia’s construction sector is in good shape and the infrastructure, transport and utilities categories are booming. This important sector continues to help drive capital investment and employment growth and is replacing the activity downturn from the mining sector. However, the more populated states of NSW and Victoria are leading the way while Queensland and Western Australia have suffered the most from the end of the mining investment boom in Australia.
David Parken is CEO and managing director of DesignIntelligence Australia.
Data provided by BCI Media Group
Photos by Igor Ovsyannykov, Ricardo Gomez Angel and John Salvino on Unsplash.
Excerpted from DesignIntelligence Quarterly.