The industrial construction sector has, in recent times, chugged along somewhat unremarkably in Australia.
Yet from April to June this year, Industrial activity rose significantly with a 21 per cent quarterly increase year-on-year in the number of new industrial projects announced.
As for the number of existing projects that actually entered into construction, again there was a rise, with Cordell reporting a massive 69 per cent increase from Q2 2014 (214 projects) to Q2 2015 (362 projects). Looking at this category over a two-year period, it’s clear there were a number of determining factors in play such as a change in Federal Government in the latter part of 2013, a continuation of low interest rates (which increased developer borrowing capacity) and a rise in online retail spending.
In the three months from October to December of 2013, industrial construction activity grew tenfold from the prior quarter, rising from 77 projects entering construction to 765. From there, it remained steady throughout the December 2013 to March 2015 quarter, and now the sector is experiencing another growth spurt.
So what else is driving this recent surge? Cordell Information’s local Researchers assert that it’s mainly due to the influx of construction around distribution and logistics centres. Australia’s penchant for online shopping is necessitating a greater need for freight and distribution warehouses, with several large-scale storage solutions developments now underway which will help cope with shopper demand both now and into the future.
Furthermore, government-funded infrastructure projects in the civil engineering category have been strong of late and these projects often demand sizeable investment into the industrial category as well, such that one category supports the other.
Victoria leads the charge with a 128 per cent year over year increase in number of new projects entering construction this quarter, followed by NSW at 113 per cent and QLD at 63 per cent.
In terms of the total dollar value of industrial projects over time, Cordell has reported an even more pronounced incline, with $1.64 billion worth of projects reported for the second quarter of 2014 more than doubling to $3.4 billion in the same quarter this year. In addition, the value of individual projects entering construction this quarter is increasing, which suggests generous size and scale of the projects.
In NSW, the Guyra Tomato Farm, Southlands Toll in Botany, Oakdale Central DHL and Rivcott Cotton Ginning Facility projects account for just over 40 per cent of the total number of projects entering construction with a total dollar value of $140 million collectively, with 94 other projects representing the remainder of the $336 million in total projects reported.
In Victoria, the Dulux Paint Facility Merrifield, the Van Ommeren Tank Terminals in Mornington Peninsula and the Murray Goulburn Co-Op Avalon Project in Moira are three of the more prominent projects, with a combined value of $132 million out of a state total of 121 projects entering construction valued at $357 million.
In QLD, the Jeld Wen Australasian factory headquarters on the Gold Coast, Quinns Hill Road East Industrial development (Gold Coast) and the Robart Court Warehouse Units in Moreton Bay reached an aggregate value of $47 million.
Unlike other construction categories, such as flats and units for example, industrial developments require little-to-no pre-commitment from investors and, as such, Cordell traditionally reports a lower rate of deferred or abandoned projects due to the perceived low-risk in this construction type. When there’s demand for a building, the adage ‘build it and they will come’ (in the case of residential, retail and so on) is not so relevant for industrial, where it’s more of a ‘build it because they’re already here and waiting’ scenario.
Time will tell as to whether industrial construction activity continues to go from strength to strength, but there is a certain positivity within the industry that activity levels will be sustained well into the next decade. So on that note, how can shopping enthusiasts to do their bit to stimulate further activity in this category? They should feel confident breaking out their credit cards and indulging in a little more online retail therapy!