Construction activity growth driven by commercial workMore of it coming: a construction site in the Sydney CBD. Photo: Louise Kennedy

Construction activity growth driven by commercial work

Commercial building expanded for a second month in November as pandemic restrictions on activity eased, buoying construction even as growth slowed in apartment work and infrastructure, and as home-building contracted.

The Performance of Construction Index remained over the crucial 50 mark that signifies growth, but slipped 0.6 points to 57 showing a slight slowdown in overall growth from October.

But continued growth in the survey-based index was held up by the commercial construction sector, which recorded a 6.3-point gain – following October’s 21.3-point leap – to lift its own sub-index to 68.8 points.

In the survey-based index, the higher the number above 50, the faster the rate of gain.

“The strong rebound of the Australian construction industry continued into November with healthy growth in engineering construction and commercial building activity in particular,” said Peter Burn, chief policy advisor of Ai Group, which co-sponsors the monthly index.

“With new orders having recovered from the slump in the September quarter, the construction industry is set to close 2021 making a strong contribution to the rebound of the broader economy.”

All other sectors weakened. The sub-index for house building fell 5.3 points to 46.6, the below-50 figure signifying contraction. The index for apartment construction remained in positive territory but showed a slowdown in growth, dropping 8 points to 56.3.

Soaring building costs

Engineering construction growth also slowed, with that sub-index falling 10.2 points to 66.7.

Builders faced higher costs and pressures last month, however. Input prices, which came off September’s record 98.4 to 97.2 in October, picked up again in November to 97. 5 – well above the 12-month average of 91.2.

“Ongoing high prices from suppliers and importers remained a concern for builders nationwide,” the report says.

Soaring building costs are making it hard for developers to price apartment projects that they sell now and will only complete two years later, veteran developer and Financial Review Rich Lister Harry Triguboff told this week’s Australian Financial Review Property Summit.

Demand is continuing, but not speeding up. The index for new orders was little changed, down just 0.2 points to 58.5 in November.

“Builders reported mixed conditions with some reporting an increase in new orders, while others indicated interest hadn’t picked up,” the report said.

The orders index for new apartment projects plunged by 13.6 points, indicating contraction following two months of expansionary orstable conditions, the report showed. But the picture was still positive, it said.

“A return to more normal business conditions has improved customers’ confidence across the board, leading to new orders for building projects, particularly for commercial building,” it said.

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