Australian Construction Outlook – Non-Residential Building

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Non-residential building activity has been booming across Australia in recent years, driven in particular by the office, education, warehouse, and short-term accommodation sectors. This upturn has now come to an end, with a prolonged 6-year downswing cycle set to take place.

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.

All said, the sectors responsible for much of the downturn over the next few years will be the same sectors that led during the boom. This includes activity associated with education buildings. Meanwhile, the major growth sectors helping to support activity in the short term are health, transport, and non-residential buildings not elsewhere classified (e.g., prisons, military bases, etc.).

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Australian Construction Cost Trends

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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.

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Australian Construction Outlook – Transport Infrastructure

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The upcoming upturn in transport infrastructure construction will reach unprecedented levels of work done, resulting from:

  • A collection of big capital city projects (road and rail),
  • A ramping-up of urban renewal, maintenance and improvement programs,
  • A general improvement, on a less splashy scale, of regional works, and
  • Short-term stimulus spending by the Federal, state and territory governments, in order to counter the recessionary downturn from the pandemic outbreak of COVID-19.

This report provides a concise explanation of the nature and magnitude of the impacts in the various transport construction segments – road, rail, bridges and harbours. It also provides a fully revised set of forecasts, and corresponding project list, for all segments of transport infrastructure construction looking ahead ten years.

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Australian Construction Outlook – Resources

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The overall resources construction sector experienced a modest upturn during 2020 and the first half of 2021. If we exclude oil & gas however, the upturn has been quite substantial, with the overall sector impacted by persistent declines in gas / LNG investment.

A rapid rebound in world economy and rising prices will see total resources construction rebound in 2021/22 and 2022/23. Gas and LNG investment, however, is still falling from the 2014 peak, but is expected to begin to recover in 2021/22.

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Australian Construction Outlook – Overview

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The construction industry is on the verge of another upturn, following three years of decline. We expect a 12% rise (in real terms) in total construction work done over the next two years (FY2022 and FY2023). Total activity should then remain similar, or edge slightly higher, through to FY2025, prior to the next decline.

A house building boom is currently leading the upturn, a multi-year surge in road and rail infrastructure will begin in FY2022, another wave of renewable energy construction is set to begin, this time including a large investment in battery storage, and the resources sector is also expected to rise solidly as the world rebounds from COVID-19.

This report provides a concise explanation of the outlook for the various segments of building and construction. It provides a fully revised set of forecasts for all segments of building and construction looking ahead ten years.

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Alternative Construction Market Segmentation

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This new data set provides a more meaningful picture of the construction upturn, by mining sub-segments and types of infrastructure investment.

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Australian Construction Outlook – Residential Building

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The positive impact of the HomeBuilder scheme, other incentives stamp duty reductions, and low interest rates, is driving a boom in Australia’s detached house building segment. The boost has been particularly marked in regional areas. Multi-unit residential, however, has not benefitted greatly from this, with a downturn continuing in this segment.

The critical time for house building will be once the positive boost from HomeBuilder starts to diminish. Then, the second of the current major factors – lower migration – will play a key role in determining how far activity falls.

At this stage, it appears that overseas migration will be quite slow to rebuild, hopefully returning to relatively normal levels by late-2023. The implication of this is that there will be a sizeable gap in demand over the next two years. While building activity in the first half of FY2022 is likely to still be benefitting from the current surge in HomeBuilder grants and approvals, the latter part of FY2022, and all of FY2023 are shaping up as a lean 18 months, with a large decline in housing starts expected.

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Australian Regional Construction Outlook

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Our latest regional forecasts for residential building and construction have just been released.

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Australian Construction Projects Database

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This latest list of projects corresponds with our fully revised set of forecasts published in May 2021.

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Australian Construction Outlook – Utilities

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Utilities construction activity in Australia has undergone three distinct growth cycles in the last decade. The first was a long-term growth cycle between 2005/06 and 2012/13 stemming from major renewal and upgrading of water infrastructure in response to prolonged drought and a resources boom that stimulated construction of gas pipelines.

The second followed in 2016/17 and 2017/18, driven by the ramping-up of work on the National Broadband Network (NBN) and the approach of the 2020 Renewable Energy Target (RET) year, which encouraged a surge in wind and solar farms across Australia.

We are now on the cusp of a third expansion forecast for 2021/22 and 2022/23, where we expect work done to peak at $34 billion (in constant 2018/19 prices). This outlook is supported by these key influences; the next wave of renewable energy investment, driven by the acceleration in large-scale battery storage and a continued process of decarbonisation in the electricity market, additional spending on the NBN, and a new phase of gas pipeline construction aimed at increasing sources of gas supply.

Following this next wave of construction, we forecast a downturn from 2023/24 onwards.

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