Queensland Looks Forward to Better Construction Outlook

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Monday, March 30th, 2015
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Despite uncertainty following the surprising election result, the construction sector in Queensland is expecting a continuation of the current modest recovery in industry conditions.

To be sure, the sector is facing a number of headwinds. With the dollar value of work done throughout the state’s engineering construction sector in the second half of last year ($16.878 billion) being down 27.4 per cent and 18.7 per cent compared with corresponding periods in 2013 and 2012 respectively, according to ABS data, the resource sector slowdown is biting hard.

Furthermore, with the Australian Construction Industry Forum expecting the dollar value of work done on civil construction to drop from a peak of $41.667 billion in 2013/14 to just over $28 billion by 2016/17, more of this is yet to come.

That is having a flow on effect on demand for office space and new commercial construction, which in turn points to another area of weakness: at $2.455 billion, the dollar value of non-residential building approved throughout the six months to December last year was down by 31 per cent and 21 per cent on the equivalent periods in the previous two corresponding years respectively. This means the pace at which new commercial building work is coming in is actually slowing from already low levels.

Moreover, the shocking defeat of the Newman government has given rise to policy uncertainty surrounding a number of important areas, and it is unlikely that the (yet to be released) capital works program of the new government will be as extensive as that previously planned under the previous government. The new government has stated it has no plans to proceed with a program to privatise public assets in order to free up funds for debt repayments and investment in public assets.

Offsetting all this, however, is the lift in conditions in new residential housing, where an upturn which began in the middle of 2013 has strengthened to the point where building approvals are approaching historically respectable levels.

Moreover, participants in a recent Master Builders survey say conditions in commercial building have stabilised, perhaps indicating that the dire picture painted by aforementioned approval data in this sector may be misleading.

And despite uncertainty surrounding the change in government, Master Builders Association of Queensland deputy executive director Paul Bidwell expects the new government will adopt a measured approach to any critical areas of policy change.

With this in mind, builders who expect industry conditions to improve over the next 12 months outnumber those who expect conditions to deteriorate by a factor of more than three to one.

Key Sectors:

Housing

While conditions in the home renovations market are expected to remain subdued, a substantial recovery in new housing construction continues to gather momentum, with approval numbers over the past six months implying an annual build rate of more than 38,000 homes. The Housing Industry Association expects annual numbers of construction starts to return to historically respectable levels of more than 40,000 and remain at those levels for the foreseeable future.

qld housing starts

Commercial Building

While on an aggregate basis the value of non-residential building activity is set to remain flat, this overall picture masks considerable variances within individual sectors. Activity is set to remain subdued in office building due to weak demand in that market, and activity in healthcare expected to drop back but significant opportunities exist in the retail sector as well as the improving industrial and accommodation sectors.

Key upcoming projects (information courtesy of Cordell and updated as of Nov 14):

  • Broadwater Marine Project, $5 billion, integrated cruise ship terminal on the Gold Coast, start date: Oct 15, status: possible
  • Aquis Great Barrier Reef Resort, $4.2 billion, start: May 2015, status: early
  • Etheridge Integrated Agricultural Project, $1.977 billion, Georgetown, plant & animal husbandry (agri/horticultural, sawmills, nurseries, greenhouses), start: June 2016, status: possible

qld - comm

Engineering Construction

Although resource work is dropping back, activity in this sector is still set to remain at respectable levels for some time and decent opportunities remain in this sector. Meanwhile, Queensland is expecting an upturn in activity in transport and roads as well as telecommunications thanks to work on the NBN.

Key upcoming projects:

  • East Coast of Australia High Speed Rail Network, $61 billion, start: June 16, status: early
  • Alpha Coal Project, Alpha (Galilee Basin), $6.5 billion, start: Jul 15, status: registrations
  • Brisbane Underground Bus and Train Project, $5 billion, June 15 status: under review by new government

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Employment

Due to low levels of building activity in recent years, current conditions in the market for workers and subcontractors in the Queensland construction sector are generally subdued, with ABS estimates suggesting that the number of people who were employed throughout the sector in the three months to November last year was lower than that during the previous corresponding periods in any of the past three years.

Going forward, while participants in the Master Builders survey generally expected staffing levels 12 months from now to be roughly the same as they are today, Ronan Mulry, director of Hays Construction at recruitment agency Hays, is much more optimistic. Mulry said companies are gearing up for more construction activity and are looking at hiring commercial staff such as project managers and commercial administrators and believes there will also be a modest increase in demand for temporary workers on smaller residential projects early in the year.

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