Brisbane, the Gold Coast and the Sunshine Coast are taking the state construction lead as improving residential and commercial building markets are driving a modest overall improvement in conditions within the Queensland construction sector despite a significant pullback in resource sector work.
Following a period of low building activity, sentiment within the sector has now lifted as builders report rising turnover, stabilising conditions regarding profitability and modest improvements in the forward order book. Levels of activity have not yet approached those where builders are able to secure significant increases in contract prices, however.
In a recent survey conducted by the Master Builders Association of Queensland, builders who expected conditions to improve over the coming 12 months outnumbered those who expected conditions to deteriorate by more than five to one. Not surprisingly, however, significant disparity exists between regions which are highly exposed to the improving residential sector in the state’s south-east and those with greater exposure to resource sector activity, with sentiment levels being highest in Brisbane, Gold Coast, Sunshine Coast and Far North Queensland and lowest in Central Queensland and Mackay.
Below is a snapshot of current market conditions and the outlook for the state in terms of residential building, commercial property, non-residential building, civil construction and construction sector employment.
Notwithstanding expectations that the surge in apartment building has peaked, the Housing Industry Association says an expected 15 per cent rise in detached housing commencements in 2014/15 followed by a further 10 per cent in 2015/16 driven by significant levels of undersupply. This means overall levels of new residential construction should continue to rise over the next two years and return to historically acceptable levels of 39,000 plus commencements by 2015/16.
Meanwhile, the dollar value of investment in renovations activity is set to bounce back from a shocking low of $6.327 billion in 2013/14 to reach $7.263 billion by 2016/17.
As the broader economy benefits from improving conditions in housing and tourism, the outlook for the commercial property sector in Queensland is encouraging notwithstanding the resources slowdown. Expectations are, however, less strong in regions with heavy exposure to resource work.
Participants in the latest Property Council of Australia Property Industry Confidence survey are more confident about 12-month prospects in Queensland than in any other state except for New South Wales, and are especially confident about forward capital values in housing, retail, industrial, hotel and retirement living sectors.
The one exception is the office market, where significant levels of oversupply are leading to negative absorption rates and souring vacancy levels (14.7 per cent in Brisbane) – a situation which is unlikely to ease anytime soon as almost 60,000 square meters of new space hits the market in 2015.
Having been through a previous lean patch, commercial building activity picked up from a low base in 2013/14 as work on projects such as the Sunshine Coast University Hospital and new office towers at places such as 480 Queen Street and 1 William Street got going, though the dollar value of work done is not overly high by historic standards.
While participants in the Property Council survey expect further growth in activity and employment going forward, the Australian Construction Industry Forum expects the dollar value of work done to remain stable but level off at around current levels and remain at these levels over coming years.
As resource work drops back, the overall dollar value of activity in civil or engineering construction in Queensland is set to fall by around more than a quarter over the next three years, though the value of work on entertainment and recreation facilities is expected to almost quadruple over the four year period spanning 2012/13 to 2016/17 in the lead-up to the Commonwealth Games.
For now, employment levels within the Queensland construction industry have dropped back as resource construction projects wind back. Reflective of the differing fortunes of the resource and housing sectors, the most recent HIA Trades report indicates modest levels of oversupply of skilled trade professionals in regional Queensland but a roughly equal balance of demand/supply in Brisbane.
Going forward, however, with participants in the Property Council and Master Builders surveys modestly optimistic about their own hiring intentions over the next 12 months, the outlook in this area appears to be reasonably promising.