Report: NSW Construction Market Presents Positive Outlook

Share On Stumble
NSW construction market outlook is positive

Things are going so well in the New South Wales construction industry that about the only thing more common than a new set of data showing yet another month of rising new home sales or building approvals is a pronouncement from state roads minister Duncan Gay or transport minister Gladys Berejiklian about further progress in bringing another of Sydney’s upcoming multi-billion dollar infrastructure projects to market.

While some states, such as Victoria and Western Australia, are looking at mixed fortunes across sectors and others such as Tasmania and South Australia are experiencing poor conditions across the construction market, New South Wales appears to have hit a ‘sweet spot’ in which most of its stars are aligned.

NSW Construction Activity

Click to enlarge

In contrast to the situation in Victoria, for example, New South Wales has seen extremely low levels of home building in recent times and has a great deal of pent up demand. Furthermore, while a fourfold increase in resource construction in recent years is now in reversal, the effect of the boom in this segment of the market was nowhere near as significant in the context of the state’s overall construction industry as it was in Queensland or WA – and in any case, the drop in this segment is being mostly offset by strengthening levels of infrastructure investment.

More broadly, the state’s economy is not booming but is humming along at reasonable levels of 2.5 to three per cent annual growth.

Not surprisingly, then, participants in the Property Council of Australia’s most recent Property Industry Confidence Survey are more optimistic about forward work schedules and overall prospects in the state compared with anywhere else in Australia.

Yet thanks to the combined impact of lower levels of activity in mining, subdued public-sector spending on buildings and near-decade low levels of investment in the renovations part of the housing sector, this is not exactly a boom – a situation not helped by the current uncertainty surrounding planning reform. Overall, the Australian Construction Industry Forum (ACIF) expects the value of work done throughout the state to rise a modest 2.2 per cent in 2013/14 to come in at $50.073 billion, with only modest growth anticipated thereafter.

Below is a sector by sector breakdown of the outlook for the state:

Residential Construction

With the number of starts having already jumped from appalling lows of 30,700 to 39,720 last financial year and the Housing Industry Association expecting commencements to reach 44,130 in 2013/14 – the highest level on record since 2003/04, the outlook for new residential construction in New South Wales is extremely positive as the low interest rate environment continues to unlock pent up demand built up over a period of low building activity – albeit with the rebound coming off a low base.

The situation is not so positive, however, in renovations, where the value of investment plummeted to decade lows of $7.260 billion in 2012/13 and the HIA does not see output reaching levels of $8 billion plus again until 2015/16.

NSW Dwelling Unit Commencements

Click to enlarge

Commercial Property

With New South Wales being the only state apart from Victoria and the Northern Territory where participants in the Property Council survey expect price growth across all sectors over the next 12 months, the overall situation for commercial property in the state is generally positive.

That said, office vacancy rates in the Sydney CBD jumped from 7.2 per cent in January to 8.9 per cent in July amid faltering demand, and this sector of the market will be tested over the longer term as new space at Barangaroo comes online.

Non-Residential Building

Thanks partly to work on Barangaroo, as well as a more general pickup in conditions and a decent range of other projects around the $2 billion plus mark such as Sydney Business Park, the Middleton Grange Village Town Centre and Harbour Foreshore Park & Commercial Complex at Millers Point, the ACIF expects the value of work done in non-residential building to bounce back off a near-decade low of $7.847 billion in 2012/13 to $8.430 billion in 2013/14 and hit $9 billion by 2015/16.

While public investment is expected to drop back, commercial sectors such as offices, retail and industrial are expected to be the key winners, with activity in the first two being driven primarily by the aforementioned developments and that in the third being helped along by work on Sydney Business Park, the Dalton Power Project and the Southern Distribution Business Park in Goulbourn.

NSW Non-residential Buildings

Click to enlarge

Engineering Construction

While a return to more normal levels of mining and heavy industry investment is expected to see the overall value of work done in engineering construction in New South Wales drop back from its 2012/13 peak of $23.182 billion to $21.669 billion by 2014/15 (ACIF), output in some infrastructure sectors such as roads (which has already doubled in the past five years), non-road transport (which has experienced a similar surge), power and electricity and telecommunications is set to continue to increase throughout 2013/14 off already high bases.

Thanks largely to work on WestConnex as well as Pacific Highway upgrades between Woolgoolga to Ballina and from Wells Crossing to Iluka Road at Hardwood, momentum in the roads sector in particular is expected to carry on for at least five years.

NSW Engineering Construction

Click to enlarge

Employment

Thanks largely to the recovery in housing, conditions in the market for labour in the construction industry have picked up, with ABS estimates putting the overall number of people employed in the sector during the three months to August at 293.8 – up 3.32 per cent year on year.

Going forward, aforementioned momentum in new residential construction, commercial building and infrastructure is expected to underpin further strength in the market. Participants in the Property Council survey are more bullish about forward staffing level expectations in New South Wales than they are in any other state, and the ACIF sees overall employment numbers surging to 310,000 by the first quarter of 2015.

NSW Construction employment Stats

Click to enlarge

CONTRIBUTED BY:


Andrew Heaton is an established writer in the building and construction industry. After graduating with a Bachelor of Commerce degree, he worked for many years as a Certified Practising Accountant and business journalist. Having worked for Sourceable since early 2011, Andrew is a senior writer on bo...

SHARE

Share On Stumble

Comments

 characters available
advertisement

More Construction

CFMEU Needs a Makeover

cfmeu

It’s time the CFMEU adopted a new union business... Business

EU Approves Lafarge-Holcim Merger

business

EU anti-trust regulators have given the green light for... Business

Ready for the Meltdown in a Missile Silo

missile silo

Decades ago, during the Cold War, many Americans built... Residential

advertisement