A substantial expansion of work in sectors such as transport, water and non-residential buildings is set to deliver significant opportunities for Australia’s maintenance sector over the next fifteen years, a new report has found.

Oxford Economics Australia has released the latest edition of its Maintenance in Australia report.

The report provides 15-year forecasts for maintenance activity across the sectors of transport, utilities, mining, industrial and non-residential building.

Overall, it forecasts that the dollar value of maintenance work done throughout the country will expand by 5.8 percent over the next five years from $56.8 billion in 2022/23 to $60.1 billion in 2027/28 (all amounts quoted in 2021/22 constant dollar terms).

Beyond that, activity is expected to reach $67.0 billion by 2038.

The 5.8 percent growth rate which is expected over the next five years represents a more subdued level of expansion compared with the 12.8 percent growth in maintenance expenditure that occurred over the five years to FY2023. That strong growth over the past five years has largely been driven by a COVID-era blitz in road maintenance along with a ramp up in spending to support the mining and LNG sector.

Nevertheless, the relatively modest levels of anticipated growth overall obscure significant opportunities that are expected to emerge due to stronger levels of activity in sectors such as transport, water and non-residential buildings.

Opportunities in these areas will offset more subdued maintenance conditions in mining, electricity, telecommunications and manufacturing (see below).

In an interview following the report’s release, Dr Nicholas Fearnley, Head of Global Construction Forecasting for Oxford Economics Australia and author of the report, told Sourceable that several factors lie behind the expectations of stronger activity in the above sectors.

In transport, these include both a growing willingness on the part of governments to address an increasing maintenance backlog along with the need to maintain a larger asset base following the current boom in road and rail construction activity.

In water, meanwhile, activity will be driven by the need to address water security concerns through both maintenance of current assets and construction of new assets – the latter of which will underpin stronger maintenance activity in the longer term.

Interestingly, Fearnley notes that the expected growth in water maintenance activity over the longer term could in around a decade or so see that sector begin to experience similar capacity challenges to those which are currently evident in transport.

“Looking at transport, the construction sector is approaching the peak in the publicly funded infrastructure boom,” Fearnley said.

“Once this infrastructure becomes operational, there is obviously the need to maintain it.

“So we are naturally going to see an increase transportation maintenance spending. It will continue to grow as these projects become operational.

“I should also flag that there is a road maintenance backlog which governments are paying more and more attention to. Governments appear to be more willing to fund road maintenance activity as they seek to address this. And so we are seeing that road maintenance is going to remain at a higher level than it was at previously even after accounting for the higher asset base.

“It is this willingness from governments to address this maintenance backlog will drive growth in maintenance spending.”

“But the building of new assets is helping to drive growth in maintenance spending on other assets such as railways.”

“When we are looking at water, it’s very much a long-term question around water security.

“There is a natural need to maintain aging water infrastructure, but we have also got quite a strong investment pipeline coming through particularly in Queensland where there is a growing population and the age of the asset stock makes addressing this more pertinent.

“So, I think it is quite an interesting construction overlay here. We have got Queensland that has got a legislated investment planned into water infrastructure. We see a few other states jumping on board as we did during the millennium drought.

“(As a result,) We could start seeing the same construction capacity challenges that have come through in the transportation space playing through into the water space. That’s maybe a decade or so away depending on what happens especially if we return to El Nino and dam levels start to fall.”

Finally, turning to non-residential buildings, Fearnley expects significant growth in maintenance expenditure on healthcare and education facilities.

The growth in healthcare will be supported by government investment in hospitals following the pandemic along with a pipeline of new hospitals that will add to the asset base that needs to be maintained once they are open and in operation.

Meanwhile, the growth in education maintenance activity will be supported by ongoing investment in education building activity along with a growing awareness surrounding the backlog of maintenance in public schools across the country.

Maintenance is not Boring

According to Fearnley, a common misconception surrounding maintenance work is that this is boring or of lesser importance compared with new construction.

In the public space, maintenance activity is less spectacular from a political viewpoint compared with cutting ribbons on new hospitals, freeways or schools.

Despite this, Fearnly says the importance of maintenance should not be underestimated.

For starters, anyone driving over poorly maintained roads would attest to the need to keep assets in suitable working order.

Maintenance is also critical for worker and public safety and for ensuring that benefits which are expected from new asset construction are realised over the asset’s useful life.

At a broader level, maintenance delivers social, economic and environmental benefits through greater levels productivity, safety, social wellbeing and environmental performance.

Finally, for construction firms, a portfolio of maintenance work can deliver a stable stream of income.

This can help to smooth out the effect of cyclical variations within the new-build market.

(Governments are increasingly looking to address a backlog in school maintenance)

Challenges and Solutions

Going forward, Fearnley says that Australia faces several challenges in maintaining its critical asset base.

As the design and construction sector delivers new buildings and infrastructure assets which are more energy efficient and resilient to climate impacts, maintenance will become increasingly important to ensure that these assets are maintained at the designed level of environmental performance as well as operational performance.

With the maintenance sector needing to compete with new construction for labour, meanwhile, current skills shortages in critical infrastructure occupations will pose a challenge in ensuring that maintenance work is kept up to standard.

Finally, with governments facing fiscal constraints, maintenance activities will need to compete with other spending priorities for funding.

Likewise, in the private sector, maintenance is one of the areas which are likely to be managed during times where revenue may be lower and budgets may be tighter.

To help address these challenges, he says that use of technology will be important to improve asset inspections and to identify opportunities for predictive and preventative maintenance.

“I think there is a lot of opportunity for technological disruption,” Fearnley said.

“I spoke in the media release (published at the time of the report’s release) about using drones to help with inspections.

“I’ve had some interesting conversation with people who are trying different technological solutions in that preventative space to try to identify (repair and maintenance) issues before they are happen so that they are quite cheap to fix.”

Forecasts at a glance

Key points in the report are as follows (all values stated in constant FY22 Australian dollar terms):

• Across all sectors, the overall dollar value of maintenance work done is forecast to expand by 5.8 percent over the next five years from $56.8 billion in 2022/23 to $60.1 billion in 2027/28. This represents a more subdued level of maintenance activity expansion compared with the 12.8 percent growth that was recorded in the five years to FY23.
• Further out, the value of maintenance work is expected to reach $67.0 billion by 2038.
• Significant growth is expected in the transport sector, where maintenance expenditure is expected to return to a long-term growth trajectory in the coming financial year following a dip in 2023/24 which occurred as the COVID-era road maintenance blitz wound up.
• In particular, road maintenance activity expected to return to growth in the coming financial year and is expected to surpass $10bn in FY30 before remaining at historically elevated levels thereafter. This will be supported by state and federal government efforts continue to address the sizeable maintenance backlog.
• Meanwhile, the dollar value of work done on railway maintenance is expected to hit $2.3 billion by 2023/24 and reach $2.5 billion by the end of the decade. Activity in this sector will be supported by the current record levels of activity in publicly funded construction projects. Maintenance requirements will then take another step up as work on these projects is complete and the new railway lines and stations become operational.
• Another promising area is water and sewerage, where spending is expected to hit $3.1 billion in FY 2024 before reaching $3.5 billion by the end of the decade. Spending growth in this area will be supported over coming years by the need to maintain both an aging and larger asset base. Longer term, growth in maintenance output will be further supported by a significant pipeline of construction projects particularly in Queensland and New South Wales.
• A third area of opportunity is non-residential building, where long-term momentum will be driven by significant maintenance expenditure on healthcare and education The growth in healthcare will be supported by government investment in hospitals following the pandemic along with a pipeline of new hospitals that will add to the asset base. That in education will be supported by ongoing investment in education building activity along with a growing awareness surrounding the backlog of maintenance in public schools across the country.
• Turning to the negative side, spending on electricity maintenance will subside as coal-fired power plants are progressively replaced by wind and solar solutions which generally require a much lower maintenance spend.
• In telecommunications, the level of maintenance investment will continue to contract as NBN Co replaces parts of the existing copper network with fibre that is cheaper to maintain.
• Slower growth is expected in mining maintenance activity as a previous maintenance boom in this sector which followed the mining and LNG construction boom is now approaching its peak and asset owners are now seeking to manage their maintenance costs.
• Finally, in manufacturing, several factors will act as a drag on maintenance expenditure growth despite green shoots in this area in terms of defence, rail manufacturing and mineral processing. These factors include higher levels of production costs relative to overseas manufactures, lower levels of protection and global uncertainty.

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