Conditions in the state may be patchy and varied, but areas of opportunity are finally starting to emerge within the construction sector in South Australia.

To be sure, conditions at the moment are awful. At $10.745 billion, the overall dollar value of work done during 2014/15 was the lowest on record since the global financial crisis.

Activity in civil construction and non-residential building stand at their lowest levels in years as spending on transport, electricity and water assets as well as resource related activity has plummeted and the stimulus effect of the Building Education Revolution has worn off. Builders throughout the state are reporting poor conditions regarding profitability, sales volumes and customer traffic, according to a recent Master Builders Association survey. Thanks to sluggish population growth and a state economy which has barely grown at all over the past two years, the sector has been suffering from a severe lack of fundamental drivers for growth.

Workers have felt it too, as the state’s construction sector has shed a net of 7,300 workers over the past two years. Hiring, according to the Master Builders survey, became easier in 12 out of 16 trades in the most recent quarter, with only plaster fixers, roof tilers, building consultants and steel fixers having bucked the trend. Housing starts, the Housing Industry Association (HIA) reckons, probably registered their third-lowest year in the past 13 years in 2015.


Be that as it may, areas of promise are emerging. After another subdued year this year, the housing sector will return to solid levels of growth from 2017 onward, HIA says. Having bottomed out at horrible lows last year, activity in commercial building sectors such as office, retail, industrial, education, accommodation and sporting and recreational facilities are all set for better years in 2015/16.

Indeed, forecasts from the Australian Construction Industry Forum (ACIF) suggest that the dollar value of work done in non-residential building will actually grow by 13 per cent in the current financial year – albeit from a low base. Whilse several subsectors within civil construction will remain in decline, meanwhile, the pipeline of road and rail projects now looks more promising compared with 12 months ago.

Finally, respondents to the Master Builders survey are optimistic that their business activity will increase over the next six months and that the volume of work on their books will grow in the near term notwithstanding the challenging nature of current conditions.

The government, too, is looking to the sector as a potential driver of employment. Around $2.6 billion worth of public funded projects are set to start this year, including the Northern Road Corridor, the Darlington Upgrade and the O-Bahn tunnel as well as well as the redevelopment of Adelaide’s Festival Plaza. The government is also trying to overhaul what is seen as a cumbersome planning system. Reductions in stamp duty on non-residential properties are to be phased in over three years.

To be sure, there are challenges. Courtesy of the cessation of car manufacturing along with difficult conditions in sectors such as resources, power and defence, generating the kind of long-term recovery across the state’s broader economy which would underpin confidence in residential and commercial investment will not be easy. Indeed, Treasury forecasts suggest that the state’s economy will struggle to grow at more than two per cent per annum over coming years and that overall employment growth will be virtually zero.

Even some of the reforms are causing concern, with groups such as Master Builders saying excessive power given to the Minister under the new planning legislation will politicise decision-making regarding development approvals and that the creation of a new urban boundary for Adelaide will unduly restrict development opportunities.

With the improved levels of demand, modest upward pressure is likely to re-emerge in terms of tender prices, which have been stagnant over recent years amid limited pressures upon the cost of most materials and an environment which has forced trade contractors to abandon thoughts of significant price increases in order to win work.

In 2016, project management and advisory outfit Rider Levitt Bucknall says it expects a three per cent increase in tender prices, followed by further increases of 3.5 per cent in both 2017 and 2018.


Key growth sectors:

According to forecasts by HIA and ACIF, key areas of opportunity are as follows:

  • After a further soft year in 2016, activity in new housing construction will return to a long term growth trend, with HIA expecting the number of starts to increase by between five and six per cent per annum over the three-year period from 2017 until 2019. Decent growth will also occur in investment in the level of small, DIY-style renovations, ACIF says.
  • Activity in retail construction will bounce back by 25 per cent in 2015/16 after coming off horrible lows in 2014/15 (ACIF) amid projects like the expansion of the Westfield Shopping Centre at Marion, the redevelopment of Adelaide Central Plaza and a new neighbourhood centre at Flagstaff Hill.
  • Likewise, activity in areas like construction of educational facilities and sporting and entertainment facilities will bounce back amid decent levels of investment from tertiary institutions. Major projects include a new clinical school at the University of Adelaide, a new high school in Adelaide and a new sporting and cultural facility at the University of South Australia.
  • Having come off 11-year lows in 2014/15, office building activity will grow by 20 per cent over the next three years amid a decent number of smaller projects including new office towers at Festival Plaza and King William Street as well as mixed use developments in Angus Street and Wakefield Street.
  • As tourism rebounds, the hotels and accommodation sector is expecting a spike in activity this year followed by reasonably strong levels of activity thereon after. Major projects include a new hotel at Adelaide Airport and new hotels in Adelaide including the Holiday Inn Express Hotel, Enigma 8 (The Lester Hotel) and – further out – Park Hotel Pirie Street, the Marina Regency Integrated Hotel Development and Sofitel Hotel and Residential Tower.
  • Having come off eight-year lows in 2014/15, transport presents another area of opportunity as the value of work done on roads and highways jumps by around 32 per cent over the three years to 2017/18 and that done on non-road forms of transport will more than triple after bouncing back off 11-year lows last year. Upcoming starts include the Northern Road Corridor, the Darlington Upgrade and the O-Bahn tunnel and the Torrens Junction rail separation upgrade in Bowden, while work on South Road upgrades will continue.
  • Work on telecommunications facilities will be extremely strong over the next three years as activity related to the National Broadband Network moves toward its peak.