Non-residential construction to remain steady at high level - report

Non-residential construction to remain steady at high level – report

Australian non-residential building commencements are expected to remain at a high level while residential commencements are set to experience the sharpest contraction since the 2008 global financial crisis, according to building market analyst BIS Oxford Economics.

The Building in Australia 2018-2033 report indicates the real value of national building commencements rose an estimated five per cent in 2017/18 to $118.5 billion, up to 35 per cent in real terms since the last trough in 2011/12. However, building commencements are forecast to fall a cumulative 10 per cent over the next two years, led by a 23 per cent correct in residential starts.

In contrast, the report forecasts the value of non-residential building commencements to rise a further five per cent over the next two years, following. A cumulative increase of 51 per cent over the past three years.

Total non-residential starts are estimated to have surged 20 per cent in 2017 to a record $46.38 billion.

New South Wales and Victoria are driving the boom in non-residential building, according to the report. One of the largest growth sections has been office building, which has seen a 100 per cent increase over the past two years, with 11 projects valued at or more than $250 million starting construction.

Supported by a number of major prison and defence projects, other social and institutional building is estimated to have also grown strongly.

BIS Oxford Economics Associate Director of Construction, Maintenance and Mining Adrian Hart said we are still seeing strong investment cycles play out in the non-residential building market.

“The resources boom drew industry and employment to the mining regions. The pendulum has swung back the other way over the past few years, with weakness in the resource sector, a lower dollar and improving service sector conditions supporting new commercial and industrial developments, particularly in NSW and Victoria,” he said.

The report notes that activity in non-residential construction will remain at a relatively high level for the next few years, while other sectors such as health, transport building, entertainment and recreation, retail and accommodation are forecast to see higher levels of commencements over 2018/19 and 2019/20.

It is anticipated by the report that non-residential building activity will remain near this high base until 2021/22, as economic conditions remain solid and a series of large scale transport infrastructure projects generate flow-on investment.

From 2023, slowing economic conditions, higher borrowing costs and easing stock pressure in a number of markets that helped drive the upturn, such as Sydney offices and hotels, are anticipated to begin driving private investment further.

“The strong growth in building commencements since 2012/13 provided a welcome boost for the Australian economy at a time when resources-related investment and construction activity fell heavily,” Mr Hart said.

“But with residential building activity set for a sharp decline – along with its multiplier impacts on industries such as construction, manufacturing and retail – the Australian economy needs other investment drivers to support growth and employment.”

“Non-residential building – as well as engineering construction – projects offer such opportunities in coming years. There will be challenges, however, in ensuring a steady pipeline of non-residential work, as well as a growing stock of non-residential construction skills in local hotspots, to avoid straining construction industry capacity and capability to deliver,” he said.