Australia's construction sector is set to deliver almost $257 billion worth of opportunities in 2022/23, the latest forecast suggests.
Releasing its Construction Market report, Australian Construction Industry Forum (ACIF) says it expects the dollar value of work done on building and engineering construction throughout Australia to increase by 2.8 percent to go from a forecast $249.5 billion in 2021/22 to $256.6 billion in 2022/23 (2019/20 constant prices).
As a result, the sector is expected to add a net 35,000 jobs during calendar 2022 to go from a workforce of 1.152 million employed people as at the end of 2021 to almost 1.2 million by the end of this year.
Leading the way will be residential building and engineering construction.
In residential the current boom in activity is expected to run for another two years as the value of work done increases by a further 2.0 percent in 2022/23 and 1.1 percent in 2023/24 to go from already elevated levels of $109.402 billion in 2021/22 (forecast) to $112.779 billion in 2023/24.
Whilst stimulus measures have tapered off and interest rate rises are likely to soften demand (whilst also further raising the cost of doing business), ACIF says the backlog of unmet housing demand is still very large.
The rise in activity will be driven by an upturn multi-unit residential construction amid rising levels of approvals and project flow in this subsector.
Meanwhile, output in detached home building is expected to ease back but remain at historically elevated levels whilst historically elevated levels of activity are expected to persist in large and small home renovations.
Meanwhile, engineering construction activity is set to surge amid a massive pipeline of transport projects, work on clean energy infrastructure and transmission lines in the energy sector and a recovery in mining work (se below).
All up, activity in this sector is expected to grow by 7.3 percent in 2022/23 and 5.0 percent in 2023/24 to go from already elevated levels of $93.343 billion in 2021/22 (forecast) to reach a peak of $106.8 billion in 2025/26.
However, further contractions are expected in commercial and non-residential building as COVID restrictions saw a decline in both the value of approvals and the number of new projects coming into a new project database which is maintained by ACIF and which draws upon data from real-estate and construction services provider Cordell.
All up, ACIF expects the dollar value of work done in commercial, public and other non-residential buildings to fall by 9.8 percent in 2022/23, 4.0 percent in 2022/23 and by a further 1.5 percent in 2023/24 to go from a forecast $46.759 billion in 2021/22 to $44.214 billion by 2023/24.
Driving this decline has been a severe COVID impact on business models of many operators across sectors such as accommodation, higher education, discretionary retail and entertainment/recreation along with ongoing uncertainty about the pandemic’s effect on in-store retail and office occupancy.
Even here, however, there are areas of opportunity.
Commonwealth and State Governments have announced plans to invest and build in health, in entertainment and recreation (including museums and galleries) in schools, and in some other miscellaneous categories (including defence facilities, correctional services and justice) as well as in transport buildings (stations and passenger terminals).
Despite the optimistic picture overall, the forecast acknowledge that risks and challenges are increasing.
Most obviously, the shortage of materials and labour is putting extreme pressure on project costs and timeframes.
On materials, prices for steel, structural timber and electrical components have risen by 43 percent, 40 percent and 15 percent over the past year.
Meanwhile, shortages of workers mean that unfilled job vacancies across many skilled trades, machinery/equipment operation and laboring roles are at record highs.
In addition, the rise in interest rates (albeit from extremely low levels) will soften demand whilst increasing the cost of doing business.
Those rising costs are placing pressure on builder margins and leading to greater insolvencies such as Probuild and Condev.
Even on Thursday, the nation’s largest home builder Metricon was forced to deny reports that it was in financial difficulty.
Kerry Barwise, ACIF Chief Forecaster and Managing Director of FTI Consulting acknowledged challenges but adopted an optimistic outlook regarding activity levels nonetheless.
“We are forecasting economic resilience with reasonable growth in construction activity and employment,” Barwise said.
“The record low levels of unemployment supports the upgrade to the outlook for building and construction activity in 2021-22 and into 2022-23.”
“However, business in these challenging circumstances is like juggling knives. There is growing risk of insolvency for some in this industry.”
Bob Richardson, Chair of ACIF’s Construction Forecasting Council said that in spite of inflationary pressures and supply chain challenges, the general outlook ‘gives some room for people in the industry to feel hopeful for the future’.
Where the Opportunities Lie
According to the report, the outlook is bright across several areas:
- Courtesy of a higher number of approvals and improved project flow, the value of work done in multi-unit residential construction (units, townhouses, flats, apartments) is expected to increase by 9.0 percent in 2022/23 to go from a forecast $26.1 billion in 2021/22 to $28.528 billion in 2022/23.
- Activity levels will contract but remain elevated by historic standards in new house construction and home renovation work amid the massive pipeline of work in these sectors.
- Whilst other subsectors of non-residential building will remain subdued, respectable levels of work on construction of healthcare facilities are expected over the medium term amid significant project announcements in late 2021 and early 2022 [including the Waurn Ponds Innovation Education & Healthcare Precinct ($600 million), Launceston General Hospital Precinct Masterplan ($580 million) and The St Vincent’s Kangaroo Point Campus ($100 million)] as well as record funding to reform aged care and building work associated with $13.2 billion in the National Disability Insurance Scheme
- Not surprisingly, activity is ramping up in construction of railways, bridges and harbors, where the dollar value of work done has increased from $7.363 billion as recently as 2016/17 to a forecast $13.694 billion in 2021/22 and is expected to peak at $17.2 billion in 2023/24. This will happen as work ramps up on already commenced mass developments such as the Inland Freight Route, Melbourne Airport Rail Link, Sydney Metro, METRONET, and many others.
- Also strong will be the electricity sector, where activity on renewable energy projects, storage technologies such as hydrogen and batteries and transmission upgrades will see the value of work increase from $13.3 billion in 2020/21 to $18.5 billion in 2025/26.
- Meanwhile, an extra twelve offshore wind farms have been added to ACIF’s major project database since November. With each of these projects ranging in value from $4 billion to $15 billion, these projects would represent sizeable investments in new technology. Granted, many of these projects are in early stages and are unlikely to come into fruition over the short term. At any rate, only a small proportion are likely to ever be realised as many of these projects rely on government co-funding – pools for which are finite and which are constrained by factors such as limits on funding for mature technologies such as wind or capacity of the National Energy Market to handle more renewables. Nevertheless, if even only a few go ahead, this will deliver a significant boost to long-term outlook.
- Having previously halved from more than $12 billion in 2016/17 to a forecast $5.3 billion in 2021/22 as the NBN rollout wound down, activity on construction of telecommunications facilities is expected to rebound and reach $7.5 billion in 2025/26 on account of the rollout of the 5G wireless technology network.
- Meanwhile, in mining and heavy industry, the value of work is expected to increase from a forecast $27.3 billion in 2021/22 to more than $30.5 billion by 2025/26 amid a robust volume of new project additions. Recent additions include the $15 billion Desert Bloom Hydrogen Project in the Northern Territory, Queensland’s Waratah Coal Power Station $3.5 billion and the $1.1 billion H2Perth Hydrogen and Ammonia Project in WA.