The focus of opportunities in Australia’s construction sector is set to shift to civil construction and commercial building as rising interest rates have brought the boom in residential construction to an end, new data shows.

In its latest report, Australian Construction Industry Forum has provided a detailed forecast of construction activity throughout Australia by state and sector.

The forecasts also provide a snapshot of major project listings and activity based on the Cordell Connect database published by CoreLogic.

According to the forecasts, the overall dollar value of construction work done throughout Australia will remain broadly flat at just over $250 billion per annum across both 2022/23 and 2023/24.

However, the forecasts point to variations across sectors as rising interest rates are likely to kill off the boom in detached house construction whilst opportunities are emerging in commercial building and civil infrastructure.

In terms of housing, ACIF expects the dollar value of work done on new home building and existing home renovations to contract by 2.6 percent and by a further 4.6 percent in 2022/23 and 2023/24 respectively.

This will be driven by a drop off in activity in detached house construction as well as a pull-back in home renovation work from massive levels in 2023/24.

However, in civil construction, ACIF expects the dollar value of work done to increase from $92.7 billion in 2021/22 to a peak of $105.112 billion by 2025/26.

Meanwhile, in commercial/non-residential building, it forecasts a modest expansion in near-term activity from $48.633 billion in 2021/22 to $50.308 billion in 2023/24.

In particular growth sectors, according to ACIF:

  • Activity on construction of railways, bridges and harbours will continue to ramp up and peak at $16.272 billion in 2025/26 as work rolls on in respect of major projects such as the Inland Freight Route, Melbourne Airport Rail Link, Sydney Metro, METRONET, and many others.
  • Growth will return to road construction following significant announcements and allocations to projects during COVID and the 2022/23 Commonwealth and state budgets.
  • Work in health and aged care facilities is expected to grow over the next three years following a surge in building approvals for hospital and healthcare facilities in 2022/23.
  • Activity in the construction of electricity and pipelines will ramp up before reaching a peak of $18.315 billion in 2025/26 thanks to work on renewable, storage and transmission projects to deliver Australia’s energy transition.
  • Work on industrial buildings is set to remain strong over the next three years amid a strong flow of approvals and a robust project pipeline including new warehouse and logistics projects along with factories, cold storage, depots and distribution centres
  • Activity on the construction of water projects will increase on account of work on significant dam projects including the 2,100-gigalitre Hells Gate Dam project in the Upper Burdekin catchment north of Townsville.
  • Short term (in 2022/23), a rebound in office building activity is expected amid a high level of building approvals throughout 2021/22 and a strong project flow amid an improvement in office demand as occupiers seek to retain talent and encourage staff to attend the office through quality office spaces and collaborative workspace.
  • Over the shorter term, activity on other commercial buildings will remain strong amid a ramp up thanks to work on stations and new terminal facilities around the new metro stations in Sydney and Melbourne as well as a decent level of activity on data centres.
  • Modest growth will return to work on mining and heavy industry projects following a dip in activity during 2021/22. Since April, more than $15 billion in new projects have been added to Cordell’s database including the Galilee Coal Project (QLD, $4.9 billion) and the Torbanlee Train Manufacture Facility (QLD, $2.4 billion) and the Bayu-Undan Carbon Capture and Storage Project (NT, $1.6 billion).

Kerry Barwise, ACIF chief forecaster and managing director of FTI Consulting said the focus of opportunities was shifting.

“Residential Building is expected to fall over the next three years,” Barwise said.

‘It will take time for the industry to fully absorb the impacts from an increase in interest rates and a surge in building and construction costs.

“However, Engineering Construction work is expected to pick up and carry total building and construction activity over the next four years.”