Conditions in the construction sector in New South Wales are set to remain strong over coming years amid continued high levels of activity on a near term basis in new home building and a longer term uptick in spending on infrastructure work.

Excluding resources and mining, the latest forecasts from Australian Construction Industry Forum indicate the dollar value of building and engineering construction work done throughout New South Wales will rise by 3.2 per cent from an already elevated expected level of $48.732 billion in the current financial year. It will reach a peak of $50.324 billion in 2016/17 – up 17.6 per cent compared with levels seen as recently as 2011/12. Beyond that, ACIF expects activity to remain at elevated levels in 2017/18 before easing back thereon after.

Leading the way initially will be residential, where the dollar value of work done on new houses and apartments as well as renovations of existing housing will rise by around 6.3 per cent from an expected $24.55 billion in 2015/16 to $26 billion in 2016/17 – up 44 per cent on lows experienced in 2011/12. Beyond that, an anticipated decline in this sector will be partially offset by an upturn in building of new road and rail facilities as non-mining engineering construction bottoms out in 2016/17 before rising thereon after.

In addition to high levels of government spending on public infrastructure projects, the building sector in New South Wales is also being helped along by a combination of low interest rates and underlying strength in the state economy, which grew by almost six per cent last year and which currently has a seasonally adjusted unemployment rate of just 5.3 per cent.

Partly as a result, sentiment within the state’s built-asset industry remains positive, with NSW participants in the latest survey conducted by the Property Council of Australia expressing confidence with regard to prospects regarding forward work schedules, headcount, state economic growth and asset capital growth.

All this is delivering significant benefits to the sector’s labour force, which at 299,700 as at February has grown by 24,300 in the past three years. In its latest quarterly report, recruitment outfit Hays described a massive shortage of workers and indicated that project managers, site managers, site administrators and contract administrators are all in demand on the professional side, whilst work on major building and civil projects is driving demand for general/civil laboring, carpentry, electrical, plumbing and sheet metal workers on the trades side.

Going forward, ACIF reckons this will continue, and that the number of workers employed throughout the state’s construction sector will risk to 372,000 in 2016/17.

Of course, there are headwinds. Once a few big ticket projects wind up, office building activity is set to flatten out as the forward pipeline of new work being announced diminishes. Resource sector work, meanwhile, is set to drop by a further 36.7 per cent of an already declining base over the three years to 2018/19 whilst the residential sector will suffer further out amid an environment of tighter foreign sales restrictions, tighter credit conditions and the evaporation of what was previously said to be an undersupply of stock.

In other developments impacting the sector, the state government is trying to merge 152 local councils throughout the state to 115 and to consolidate 43 Sydney metropolitan councils into 25 – a move the property sector hopes will reduce red tape and deliver more efficient processes regarding matters such as development assessments and approvals. On May 12, the government unveiled the redrawn boundaries and announced that the councils to be merged had been sacked. The state is also floating ideas for new planning reforms after the government pulled back on previously planned reforms in 2013.

Areas of opportunity

According to ACIF, critical areas of opportunity are as follows:

• Roads will be the big winner, with activity set to rise by more than 42 per cent over the next five years amid a massive pipeline of major projects including WestConnex, various Pacific Highway upgrades and the Badgerys Creek Airport Link.
• Rail, bridges, harbours and airports will join in later. Activity is expected to bottom out over the next two years amid the pull back in infrastructure work associated with major resource projects but then it is slated to rise from $1.651 billion to almost $2.1 billion over the next three years thereon after amid projects like the Australia Inland Rail Expressway and Parramatta Light Rail along with continued work on projects like the North West Rail Link and the CBD to South East Light Rail Link.
• For the next couple of years at least, residential construction activity is set to remain strong as the state works though a strong pipeline of recent approvals.
• Renovations, too, will see a strong year in 2016/17, with activity on large renovations expected to surge by 37 per cent compared with 2016/17 and that on smaller, DIY type jobs expected to increase by 13 per cent.
• After bottoming out at an expected $1.104 billion this year as the hangover effect from the Building Education Revolution stimulus program finally wears off, the dollar value of work done on education facilities is set to rise by almost 10 per cent in 2016/17 before flattening off thereon after.
• Likewise, after bottoming out at an expected $1.424 billion this year, activity in the healthcare construction sector is set to rise by 13.5 per cent over the next two years amid work on developments such as stage 1 of the Westmead Hospital Redevelopment, new hospitals and health centres at Wollongong, Gosford and Wyong as well as redevelopments at Mount Druitt, St George Hospital in Koogarah and the Wagga Wagga Base Hospital.
• Having already risen by more than two and a half times over the past three years, work done on hotel and accommodation facilities is set to rise by another 13 per cent over the next two years. Major upcoming projects include the Anvil Creek Residential & Golf Resort, The Ribbon Hotel at Darling Harbour and the Shaolin Temple Residential and Tourist Development at Norwa along with a good range of projects within the $100 million to $400 million value range.
• Work associated with the NBN will see telecommunications activity rise from $2.327 billion in 2015/16 to a peak of $2.623 billion in 2017/18.