Building companies throughout Australia must carefully choose target markets in order to maximise opportunities for success next year and beyond, a leading economist within the construction industry says.

ACIL Allen Consulting executive director Kerry Barwise said that while the outlook for the industry in 2014 and beyond is generally positive, adaptability is crucial as conditions will vary across sectors and regions.

Kerry Barwise

Kerry Barwise

“The overall picture really is that it’s not so bad for construction out there,” he said. “But you’ve got to pick your market. More than ever before, it’s important to be flexible. You’ve got to move around places and you’ve got to be able to move on and make the change and do different parts of activity.”

A member of Australian Construction Industry Forum’s (ACIF) Construction Forecasting Council, Barwise is one of several panellists who have been in discussions at ACIF breakfasts across capital cities this week, during which the organisation’s latest semi-annual outlook reports have been released.

At the macro level, he says prospects are being influenced by record low interest rates and the end of the resource investment boom as well as less predictable factors such as the exchange rate – the likely direction of which he says will largely be influenced by policy decisions in the US.

While acknowledging that mining construction activity levels have most likely peaked, Barwise stressed the backlog of work in this area remains strong and levels of output will remain extremely high by historic standards.

Furthermore, he said the home building sector is picking up and patchy signs of life are emerging in commercial building.

In terms of states, Barwise said New South Wales is the standout amid strong indications of recovery in residential building supported by a decent number of developments not just in office, retail and apartments but also road and transport projects and network upgrades in the telecommunications sector. He noted, however, that there would be some degree of volatility as overall activity levels in these areas depend significantly upon a smaller range of large projects.

“For a long time, New South Wales has been the underperformer,” he said. “That’s changing. New South Wales is on the rebound.”

That is not the case, however, in Victoria, which has a decent range of road and telecommunications projects and will be relatively unaffected by the resource slowdown but will experience a ‘pause’ in home building notwithstanding the low interest rate environment amid a continued excess of stock bought about by abnormally high levels of output in recent years.

In other states, according to Barwise:

  • South Australia will largely track sideways, especially in housing.
  • In Queensland, a drop in resource work will only be partially offset by an uptick in commercial building and modest increases (off an extremely low base) in residential construction.
  • Challenges will continue in Tasmania, with last week’s doubling of that state’s housing construction incentive scheme offering some respite from the sector’s woes, but not as much as some would hope.
  • A ‘watch closely’ situation confronts Western Australia, where a ‘massive shift’ away from mining will drive a seven per cent contraction in civil construction in 2013/14 and flow through to further subdue an already weakening non-residential building sector. On the other hand, a combination of low interest rates, good population growth and healthy employment levels will underpin continued momentum in the fast recovering residential sector.

A final place of interest is the Northern Territory, where work on the Ichthys LNG project has seen overall volumes of work climb from just over $275 million in the three months to June 2011 (seasonally adjusted) to more than $465 million in the June quarter this year.

Next year, Barwise sees further growth as Ichthys continues to ramp up, momentum in an already strong residential sector continues to build and non-residential building – which surged last year – remains high, albeit with some level of adjustment.

Beyond that, however, Barwise predicts that activity will fall away (though it will remain at high levels) as work on Ichthys passes its peak and ACIL is not factoring in a ‘white-knight’ project to come along and take up the slack.

“That’s still a major, major project and something every region would love to have” Barwise said about Ichthys. “But you have to think one day the party will come to an end. We still see significant activity in that space still growing next year in the Darwin but thereafter it will start slipping down.”

“Once that project [Ichthys] is gone, there are not that many others behind it.”