The Australian Construction Industry Forum (ACIF) November 2016 ACIF Forecasts claims turbulent times are ahead for the next decade across Engineering Construction work in Australia, as the economy recalibrates from the extraordinary peaks of the resources boom.
Commenting on the report, Adrian Harrington, Head of Funds Management for Folkestone and Chair of ACIF’s Construction Forecasting Council, said: “Now that the peak has passed, opportunities for the industry’s 1.1 million participants are simultaneously softening and relocating; however it’s not all bad. The dynamics of business and public spending has seen some expenditure move between sectors, rather than fall away entirely, so the opportunity landscape has changed significantly.”
ACIF projects a 6% fall in overall building and construction activity from AU$220 billion in 2015-16 to $207 billion in 2016-17. However, this mild decline is far from uniform, with evidence that the surge in Residential Building – especially apartments – has saturated demand, or is about to. While Residential Building as a sector will continue to rise until 2017-18, from the following year, the apartment sub-sector is forecast to begin a fall of up to 40%.
The previous lift in Non-Residential Building and Engineering Construction from the mining boom and related activities has now completed, however the sub-sectors have new public and private investment that makes the distribution of activity uneven within each sector.
Engineering Construction Sector
The end of the mining and resources development boom has sliced the value of Engineering Construction work undertaken by a third in the last three years, with the value of work undertaken falling to $95 billion. However, ACIF’s forecast of increased infrastructure spending is already underway, softening the decline in engineering activity associated with the resources boom.
Demand in areas such as Telecommunications, Roads and Bridges, Railways and Harbours are positive, particularly in the east. While further falls in overall Engineering Construction are expected in 2016 and 2017 as mining development and supporting infrastructure projects are completed, revised projections point to the fall coming to a halt from 2018-19.
Residential Building Sector
Residential Building demand reached another record level in 2015-16 and is expected to continue to climb in 2016-17, albeit at a slower pace, before beginning to descend. Reflecting concerns about a potential glut in the market and the threat that this could pose to the stability of house prices and the banking system, additional prudential controls have reduced the availability of finance to investors and to developers. There are also signs of reduced foreign demand and lower immigration is starting to impact domestic demand. As such, some areas in the apartment sub-sector will see a 40% decrease from 2018-19.
Non-Residential Building Sector
The long-awaited recovery in Non-Residential Building is taking longer than expected. The prospects for this type of building work depends largely upon the outlook for non-mining business investment, and while this is improving, it is not yet enough to drive an increase in building activity until 2018-19.
States and Territories
The construction outlook for the next two to three years is more upbeat in NSW and Victoria. The projected decline in Residential Building activity will arrive later in these states and will not be as deep, given underlying strength in their economies and continued population growth. These states are also leading the way in reinvesting in critical infrastructure.