Australia’s Investment Pipeline Runs Dry

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Tuesday, August 4th, 2015
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The pipeline of significant dollar value construction projects in Australia is running dry as resource investment winds down and investment in commercial building remains slower than many expected for now, with Queensland particularly hard hit.

In a recent Investment Monitor report, financial consultancy outfit Deloitte Access Economics said that while the combined value of definite and planned projects in the pipeline actually increased by one per cent in June to come in at $820 billion, that of projects committed or under construction ($419.3 billion) dropped 3.2 per cent to come in at their lowest level since June 2011.

Worst hit was Queensland, where six of the state’s eight biggest projects – mainly in LNG, mining and export facilities – are set to be completed this year and where the overall dollar value of work in the pipeline has dropped by around 14 per cent over the past 12 months.

Deloitte says the days of a boom in major projects are gone.

It says that while higher asset prices, low interest rates and a more competitive Australian dollar (providing a boost to exports) should in theory underpin sound fundamentals for the commercial construction sector, the value of commercial construction work continues to track sideways for now. Commercial building approval numbers are doing the same, which indicates that the pace at which new building work is coming in is not picking up.

“So for now, commercial construction continues to step sideways, while engineering construction has stepped over the edge of the ‘construction cliff,” Deloitte says in its report. “The forward agenda is littered with challenges, and the glory days of the investment boom are gone.”

Around Australia, the impetus for investment in non-residential construction is falling notwithstanding the low interest rates and the fact that money from overseas as fundamental equations of underlying demand for commercial property remain subdued. Work on public sector buildings, too, continues to wind back.

While demand for some forms of property such as accommodation and CBD retail is reasonably buoyant, the pullback in resource sector investment has seen precipitated a blowout in office vacancy rates in Brisbane, Perth and Adelaide.

In the public sector, meanwhile, activity in areas such as school and hospital building is dropping back following high volumes of work in these sectors over recent years.

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