The construction boom in New South Wales appears set to roll on in coming years as the state’s economy remains strong, a huge pipeline of projects boosts the residential and transport sectors and sectors like hospitals and accommodation show good signs of growth.

As its new premier settles in, the state’s construction industry is experiencing extremely positive conditions. In the first nine months of last year, the Australian Bureau of Statistics estimates that a record $38.3 billion worth of building and engineering work was done throughout the state – up a whopping 13.6 percent compared with the same period last year. The size of the industry’s workforce throughout the state has swelled to a record 338,400 as at November last year (ABS data) – up by 25,400 in twelve months and 64,700 over three years. Demand is running hot for site managers, contract administrators, sales and production managers and project managers on the professional side and roofers, carpenters and excavators on the trades side, recruitment outfit Hays says.

Going forward, Australian Construction Industry Forum (ACIF) expects the value of construction work done to rise further from $52.986 billion in financial year 2015/16 to more than $54 billion in each of 2016/17, 2017/18 and 2018/19 respectively. (Note: ACIF’s figures are higher than those reported by the ABS as ACIF includes work done on smaller, DIY type home renovations whereas the ABS does not.)

Having an economy which is growing at its fastest pace in decades will help. Measured by ABS figures for state final demand, the most recent data suggests that growth in NSW’s state economy rocketed along at more than five percent in the twelve months to September – albeit with much of this having driven by the high levels of construction.

Going forward, St George Bank says it expects ‘solid’ growth for the state’s economy to continue. Low interest rates and the relatively modest value of the Australian dollar should help, as should the build up in dwelling investment and infrastructure projects. This is helping to maintain healthy levels of business sentiment, which in turn would normally be conducive to higher levels of investment and greater demands for commercial, retail and industrial space.

Perhaps because of that, developer confidence is sky-high. The latest Property Industry Confidence Survey conducted by the ANZ and the Property Council of Australia showed overall levels of sentiment in NSW at 149 out of a possible score between zero and 200 – the highest level on record for any state in the survey’s history. Sentiment is particularly buoyant in respect of forward work schedules, construction activity, headcount and state economic growth and is also strong for capital growth across the residential, office, retail, industrial and hotel sectors. All else being equal, this should be conducive to a greater likelihood of developers opting to push ahead with more development work.

Furthermore, elevated levels of activity in the near-term are all but guaranteed by a massive pipeline of housing and infrastructure work. As at September 30 last year, the value of residential work in the pipeline stood at a record $22.6 billion – more than double levels seen as recently as three years ago. That in civil construction stood at $13.1 billion, up from just over $9 billion two years earlier. In the public sector specifically, the pipeline of rail, bridge and harbour work rose by more than sixfold between September 2015 and September last year; that for public sector roads ($4.752 billion) was up 77 percent as at September 30 compared with its level two years earlier.

Outside of immediate economic considerations, action is happening on other fronts. Despite having backed down on more significant planning reforms several years ago, the government is trying to push through legislative changes which would see greater use of independent planning panels when assessing development applications and promote greater use of strategic planning upfront at a local level. Whilst former premier Mike Baird’s resignation was a setback to an industry which has done well under his leadership, meanwhile. Berijiklian’s ascension is welcome given her focus on housing and infrastructure and her record of getting projects moving during her time as Transport Minister between 2011 and 2015.

Key Areas of Opportunity:

According to ACIF:

• Thanks to the pipeline of work alluded to above, residential construction will continue to be an enormous area of opportunity over the next two years as the dollar value of work done on new detached housing rises above $8 billion each of 2017/17, 2017/18 and 2018/19 and that on multi-unit construction rises above $10 billion in 2016/17 and 2017/18.
• Transport will be the other massive area of growth which is again being driven by the pipeline of work referred to above. Over the three years spanning 2016/17 to 2019/20, ACIF says it expects the dollar value of work done on roads to grow by 27 percent from $6.037 billion to $7.659 billion and that on rail, bridges and harbours to rise 49 percent from $1.577 billion to $2.354 billion. Major projects include WestConnex, the North West Rail Link, various projects associated with Pacific Highway upgrades and various works associated with the Badgerys Creek Airport.
• In commercial buildings, healthcare appears to be a significant area of opportunity with activity set to rise from an already elevated base of $1.536 billion in 2015/16 to $1.702 billion in 2018/19. Major projects include the Central Acute Services Building at Westmead Hospital as well as new hospitals at Northern Beaches, the University of Wollongong, Gosford and Hornsby Ku-Ring and redevelopments of St Georg Hospital, Blacktown Mount Druitt Hospital and the Wagga Wagga Base Hospital.
• Having already risen roughly 2.5-fold over the previous three years, hotel and accommodation facilities are set to be another area of activity as the dollar value of work done rises by another 14 percent to go from an already elevated base of $730 million in 2015/16 to $835 million in 2020/21. Significant projects income the Crown Sydney Hotel Resort at Barangaroo South, the Imax Darling Harbour redevelopment and the Shaolin Temple residential and tourist development.