|
|
|
|
|
|
|
Temporary boost in non-residential building, before modest downswing cycle dominates
|
Macromonitor has finalised the latest forecasts for our new report, Australian Construction Outlook – Non-Residential Building. This note will highlight the two major factors that will drive the non-residential building market over the next 6 years:
|
- A temporary boost in public sector funded works in the near term, and
- A prolonged 6 year downswing cycle.
Non-residential building activity has been booming across Australia in recent years, with both public and private sector building activity rising strongly. Private sector building rose in response to demand for commercial, industrial and other building spaces, primarily in the areas experiencing strong economic growth (the eastern states). Government funded projects saw a sustained period of growth as their revenues were boosted by the residential property market boom and healthy rates of economic growth for a number years. Reflecting these two factors, the real value of work done reached a $49 billion peak in 2019/20.
|
This upturn cycle has now come to an end, the real value of commencements have declined, on annual terms, in each of the three quarters to March Quarter 2021 (latest data available). In work done terms, we expect a 5% fall over the year to 2020/21. In the long-term we expect construction activity to fall in each of the six years to 2026/27, with the exception of 2021/22, however, even then work done is expected to be lacklustre with 1% growth.
|
|
This downturn was anticipated prior to the outbreak of COVID-19, due in part to the usual lumpiness of investment in business space (with additions to supply frequently exceeding short-term requirements) combined with an economy that was already showing signs of slowing. We expect a decline in the value of work done of 9%, from a peak of $49.2 billion in 2019/20 to a trough of $44.6 billion in 2026/27 (all in constant 2018/19 prices). Despite these falls, building activity will remain at a reasonably high level in an historical context.
|
|
|
While a downturn was anticipated prior to the outbreak of COVID-19, the pandemic has had its influence on the outlook by exacerbating weaknesses in some areas, but also by inspiring governments to fast-track approvals and spend more on building works themselves. This means that while private sector work done is forecast to decline in the near term, it will be offset to some extent by a temporary boost in public sector funded works, resulting in the small uptick of 1% annual growth in 2021/22. The largest increases are expected in:
|
- Hospitals, as the $590m John Hunter Health and Innovation Precinct & $530m Royal Prince Alfred Hospital Redevelopment get underway,
- Transport buildings, featuring the commencement of the $1.2bn Western Sydney Airport,
- Retail and wholesale trade, which includes the various Westfield expansions in Doncaster and Knox in Vic, and the Chatswood location in NSW, and
- Other non-residential building not elsewhere classified, which comprises of prisons and military bases.
|
|
|
The sectors responsible for much of the downturn over the next few years (from 2022/23 onwards) will be the same sectors that led during the boom from 2017 to 2020. This includes activity associated with education buildings, offices and other commercial building. We ultimately expect public sector funding to taper off as budget circumstances become less conducive to further expansions of capital spending. So once the current wave of transport and health buildings near completion, government funded projects will join the downturn period from 2023/24 onwards.
|
|
|
The upcoming downturn (from 2023/24 to 2026/27) in construction will be dominated by falls in New South Wales and Victoria. Even then, the declines will remain high in a historical context. The value of work done in New South Wales is expected to trough at $14.4 billion in 2025/26, which will be 9% higher than its previous peak in 2016. Likewise, Victoria's low point in 2026/27 will be 25% greater than its previous 2015 peak. The dominance of these two states, relative to the rest of Australia, reflects the strength of the states' economy, a political focus on social infrastructure and the impact of electricity privatisation on the availability of funding. The privatisation of the New South Wales electricity businesses has provided the State Government with $23 billion of net proceeds, some of which will be directed to school and hospital projects.
|
Meanwhile Queensland is expected to rebound earlier than most states in the forecast period, from 2023/24 onwards, with works commencing on the Lindeman Island Revival accommodation and entertainment precincts and New Griffith University Campus at Roma Street.
|
South Australia's non-residential building market is currently experiencing an expansion period, with the real value of work done rising 72% from 2016/17 to 2021/22. This boom is being supported by a significant uptick in the education and other non-residential building sectors. Work done will begin to taper off from 2022/23 onwards.
|
All in all, we’re forecasting total non-residential building work done of around $47.5 billion in 2021/22, trending down to a low point of around $44.6 billon in 2026/27, before modest upturn for the rest of the forecast period. The downturn period, however, will still be characterised by high ongoing levels of spending, averaging $45.6 billion per year over these 5 years (all figures in constant 2018/19 prices).
|
|
For more detailed forecasts and analysis, please see our latest report - Australian Construction Outlook – Non-Residential Building – September 2021.
|
|
|
|
|
Our most recent reports:
|
|
|
|
|
Australian Construction Outlook - Non-Residential Building
|
|
|
This report examines the current downturn underway in the non-residential building sector, describes its causes and forecasts the timing of the coming recovery, by sector and state.
|
|
|
|
|
|
|
|
Australian Construction Cost Trends
|
|
|
This new report on the Australian construction cost outlook explains how cost growth has slowed in recent quarters, and examines the likely impact of COVID-19.
|
|
|
|
|
|
|
|
Australian Construction Outlook - Transport Infrastructure
|
|
|
This report provides a detailed picture of the current upturn in infrastructure construction, including the timing of major projects, key drivers, and the expected timing of the peak and next downturn.
|
|
|
|
|
|
|
|
Australian Construction Outlook - Resources
|
|
|
Our new report examines the likely duration, speed and composition of the upturn currently getting underway in Australia's resources construction sector.
|
|
|
|
|
|
|
|
Australian Construction Outlook - Overview
|
|
|
This new report examines the total construction activity in Australia against a backdrop of continued declines in residential building and imminent downturns expected in non-residential building and renewable energy construction.
|
|
|
|
|
|
|
|
|
