Despite a recent slow down in major residential construction, the latest Australian Construction Industry Forum (ACIF) market forecasts show there is still cause for optimism in 2020.
Engineering and Infrastructure Booming
ACIF currently has 6,848 active projects in its Major Projects Database, with a combined value of $1,072 billion. Major engineering construction projects are in boom territory. This is partially due to millions of dollars of Federally-funded road projects, but new rail, light rail, bridge, harbour, electricity, pipeline and water sector projects have also contributed to the trend.
This is an improvement on last year when work done in engineering construction decreased by 5.5 per cent to $62 billion as many large projects had reached completion. Infrastructure construction activity is expected to start growing in line with expanded plans and programs. These include the $100 billion Federal government 10-year pipeline, Victoria’s $57 billion “Big Build” as well as the NSW Government’s infrastructure spend with its $93 billion capital program from 2022–23.
The majority of work in the electricity sector is provided by renewable energy projects.
The majority of work in the electricity sector is provided by renewable energy projects. A great example is the massive new $9.99 billion Australia-Singapore Power Link renewable energy project in the Northern Territory.
Overall, the value of work in the infrastructure construction sector is expected to rise to $66 billion in 2019–20 and further to $68 billion in 2020–21.
Residential and Non-Residential Provide Solid Relief
The Australian Construction Market Report has found that Non-Residential Building activity in sectors like industrial, hospitality, Defence, education, health, aged care and commercial is also expected to provide a solid pipeline of work in most states and territories.
The growth experienced over 2018–19 is expected to continue throughout the remainder of this year and into 2020–21, raising activity to peak at $45 billion.
During 2018–19 Residential Building work fell 0.4 per cent, and a further contraction of 8.4 per cent is projected for the current 2019–20 financial year.
While house prices have started to improve, they are unlikely to have an immediate impact on work levels. There is a lag between price rises and projects moving through the land acquisition, approval and financing stages ahead of construction.
“A fall in residential building activity is locked into the pipeline and this will take a while for this to be put into reverse.”
“Market adversity has encouraged builders to withdraw from development of new projects; we witnessed new dwelling approvals plummet last year and commencements have also fallen,” said ACIF Construction Forecasting Council Chair Bob Richardson. “A fall in residential building activity is locked into the pipeline and this will take a while for this to be put into reverse.”
Breaking it Down by State and Territory
Significant variability between states and territories has been noted in terms of the outlook. Victoria, New South Wales and Tasmania currently have the strongest economies, and this is reflected in work levels.
Director of Barwise Consulting Kerry Barwise, responsible for leading the ACIF Forecasts research, tells Jobsite that Tasmania is proving an interesting market, with increased investment in tourism, entertainment, education and health and aged care building, coupled with high inflows of migrants from interstate over the last year.
Industrial projects used to be typically light manufacturing facilities. In the new economy, however, logistics centres that support on-line retail are a growing project type.
The island state is even seeing a strong uptick in Industrial building activity which Barwise describes as very encouraging.
He suggests the state is an “example of how the overall Australian economic pendulum is shifting south and east.” This reflects a wider trend—the shift away from a resources-driven economy to one where services and the knowledge economy are rising in importance.
Victoria is also generating work in this regard, with a steady volume of projects across commercial office, education and tourism sectors.
According to Barwise, industrial projects used to be typically light manufacturing facilities. In the new economy, however, logistics centres that support on-line retail are a growing project type.
The trend is even present in Adelaide, where a strong increase in construction activity is associated with industrial category projects for the “new economy.”
Although construction activity on the National Broadband Network is coming to a close, its rollout has caused long-lasting effects. There has been a major uptick in the number of global tech firms and local start-ups setting up offices and boosting the market also for data centre construction wherever the NBP works have finished.
The delivery of the NBN is a case of “getting the backbone right” to enable the new, digital economy to flourish, Barwise said.
Victoria especially has seen a rise in tech sector entities. Recent supporting government policies aim to attract more firms, thus further increasing the momentum.
Victoria’s construction sector is also benefiting from the state’s high population growth. The detached dwelling sector is likely to remain fairly steady despite a deeper fall in multi-residential projects, Barwise said.
The Role of the Government
Nationally, he said, there is a “reasonably robust” outlook for most sectors in non-residential construction, outside of retail. The commercial office sector is “powering along,” and both education and accommodation are benefiting from their increased clout as export industries.
Educational services deliver a double dose of activity in terms of both new and expanded educational facilities as well as in accommodation for international students.
The influence of government on industry activity goes beyond infrastructure spend. Barwise explains that as part of navigating the Global Financial Crisis in the early 2000’s, almost every major hospital around the country has been upgraded and numerous new hospitals have been built. In education, the BER program saw activity across educational building at every school level.
The influence of government on industry activity goes beyond infrastructure spend.
As the current Commonwealth inquiry into Aged Care recommendations translates into policy, Barwise expects there could be a surge of construction activity as aged care providers face increasing pressure to upgrade and maintain facilities.
The rollout of the NDIS is also translating into some activity, Barwise says, as community buildings and other facilities are constructed for NDIS providers.