Commercial construction will surge this year on the back of new retail work, offsetting the weak residential and engineering sectors and halting a three-year decline in total building activity.
Non-residential work supporting the arrival of new retail entrants such as Amazon and the expansion of operators Costco and Aldi would account for $6.9 billion of the $41.7 billion-worth of work to be done in the year to June, marking a 14.6 per cent leap from last year, Master Builders Australia said in its latest round of forecasts.
“Future investment in bricks and mortar retail stores may well be dictated by the relative success, and uptake, of these international online retailers,” the industry lobby group said in its Building & Construction Industry Forecasts report.
Office-related construction work – concentrated in the two biggest cities of Sydney and Melbourne – would account for another $6.8 billion, MBA said. Tourism-related work, such as the $750 million Dusit Thani Brookwater Golf & Spa Resort in Brisbane, and tertiary education work, such as the $247 million Health Innovations Building at the University of SA, were also part of a strong pipeline of work, it said.
The report highlights the strength of the next pivot under way in Australia’s construction industry as developer appetite for new residential work weakens.
“Commercial building activity is expected to outperform the other construction sectors in 2017-18,” the report said.
“Commercial building approvals have risen steadily since mid-2016, up by more than 17 per cent over the 12 months to June 2017. However, the outlook for the residential construction sector and the tail end of the wind down in mining-related engineering construction will challenge growth in the building and construction industry in the next 12 months.”
The burst in commercial work that will prompt a 0.9 per cent increase in total construction this year to $192.3 billion – the first gain after three years of contraction – will be short-lived. While commercial work will only slip 1.4 per cent next year and infrastructure-driven engineering work will see that sector pick up 3.3 per cent next financial year (after an expected 1.1 per cent decline this year), a sharp drop in residential construction next year will pull total work done back into contraction, the MBA said.
Soaring demand for materials
Boral chief executive Mike Kane this week said the building products group was “stretched” meeting the soaring demand for concrete and asphalt in NSW.
After a likely 3.7 per cent decline this year in home building, the sector will drop a further 8.5 per cent in the year to June 2019, the forecasts say.
“Much of the activity during the housing construction boom over the last couple of years has come from the apartments market so it shouldn’t be too much of a surprise that much of the fall in activity is also expected to come from this sector,” the report said.
After three years of new housing commencements above 200,000, the average was likely to slow to 183,000 over the next five years, it said. Renovations were likely to remain a “bright spot”, it said.
“Driven primarily by cheap credit and healthy price growth, an increasing number of homeowners are choosing to reinvest in their home as a means of capturing greater value – a good move over the past few years given the relative capital return of property over other assets,” the report said.
Transport-related work coming on stream – and which would peak this year with a total value of more than $16 billion this year – was small compared with the large resources-related projects that have been ending over the past few years, but they were spread out and would provide ongoing stimulus through maintenance and upkeep, MBA said.
“Nationally, there are more than 20 transport-related projects worth in excess of $2 billion either being built or in the pipeline around the country,” the report said. “So despite the big projects in the major capitals hogging the headlines, transport investment is relatively well spread.”