The focus of opportunities in Australia’s $300 billion construction sector is set to shift over coming years as the boom in road and rail projects gives way to a huge pipeline of renewable developments, a new forecast suggests.

Published by the Australian Construction Industry Forum (ACIF), the November edition of the Australian Construction Market Report provides detailed forecasts of the outlook for activity across the nation’s construction sector.

All up, the report suggests that activity will remain broadly steady at elevated levels.

Specifically, it forecasts that the overall dollar value of construction work done will edge up by 0.9 percent to go from already elevated levels $296.5 billion in 2023/24 (constant dollar terms) to a healthy level of $299.3 billion in 2024/25.

Beyond that, activity will increase steadily over the next two years to reach $306.6 billion in 2026/27.

Not surprisingly, much of the action is in the booming infrastructure sector (see chart).

Having already surged from a low point of around $70 billion in 2020/21 to $93.9 billion in 2023/24, the value of work done on infrastructure construction is expected to increase by a further 4.2 percent in 2024/25 to reach $97.8 billion.

Beyond that, activity will remain at around this level for the following two years.

Within the sector, however, the focus of opportunity is shifting.

In transport, the flow of new road and rail projects entering the forward pipeline has dropped back as Commonwealth and state governments grapple with tighter fiscal constraints and the rising costs of interest payments on public debt.

Whilst existing pipeline of work is such that contractors in this sector will remain extraordinarily busy over the current financial year, the dwindling number of new projects will see road construction activity begin to drop back from 2025/26.

In railways, bridges and harbours – where the government investment spree was later to commence – the pipeline of existing multi-year projects will see activity continue to rise before reaching its peak in 2026/27.

As the transport boom winds down, however, work in sectors such as renewable energy and water and sewerage continues to ramp up.

Having already surged from $14.2 billion in 2020/21 to $21.471 billion in 2023/24, ACIF expects the value of work done on electricity and pipelines to reach $27.5 billion by 2028/29.

Not surprisingly, this is being driven by the nation’s energy transition.

Having already increased from 17 percent in 2017 to 39 percent in 2023, the Australian Government is aiming for the penetration of renewables in the nation’s energy mix to reach 82 percent of electricity generation by 2030.

To achieve this, the nation needs to add around 6-7 GW per year in renewable energy capacity – something which it is currently struggling to do.

Driving the growth in activity is a massive pipeline of wind (onshore and offshore) and solar farms as well as battery storage and transmission projects.

Over the last twelve months, 184 electricity and pipeline projects with a combined value of $189.3 billion have been added to a major projects database maintained by real-estate services firm CoreLogic.

That adds to an already strong pipeline of current projects such as Snowy Hydro and HumeLink as well as a large number of existing proposed developments.

To be sure, ACIF acknowledges that there are downsides to its forecasts in this area.

Many of the projects in the pipeline are competing for the same pool of funds and only a portion of these will clear barriers relating to regulatory approval, finance and insurance.

Furthermore, it should also be noted that much of the dollar value associated with renewable energy projects consists of imported manufactured parts such as turbines and solar panels.

For this reason, on a per dollar invested basis, renewable energy projects do not generate the same level of local business and employment opportunities as is the case with a similar dollar value of investment in sectors such as home building.

On the upside, however, ACIF notes there is also the chance that the sector could massively overshoot expectations should the $100 billon Western Green Energy Hub or the $30 billion Evergreen Hydrogen Hub on the Eyre Peninsula move into construction.

Another area of growth is water and sewerage.

Having already risen from $7.3 billion in 2020/21 to $11.2 billion in 2023/24, ACIF expects the dollar value of work done in this sector to reach $14.3 billion by 2028/29.

This is being driven by a large pipeline of projects to construct new dams, pipelines, sewerage treatment plants and desalination plants and to upgrade existing assets such as the Paradise Dam in Queensland.

Twelve new major projects entered the Cordell database in the six months to October. This added to an already strong pipeline of existing current and proposed developments.

Much of the activity is centred around Queensland and New South Wales and is being driven by Commonwealth/state efforts to improve water resilience and security.

Housing to Fall Well Short of Targets

Turning to housing, ACIF expects that activity will remain at subdued levels across 2024/25 before an upturn takes hold in 2025/26 and gathers full steam by 2026/27.

In addition to subdued demand, ACIF also noted that output in this sector is being further constrained as skilled labour shortages restrict the volume of work that builders are able to complete.

Furthermore, the forecasts underscore challenges in meeting national housing targets of delivering 1.2 million new homes over the five years from 1 July 2024.

Instead, ACIF expects that only 902,000 dwellings will be completed over that period – almost 300,000 short of the target.

In other sectors:

• Previously strong growth in commercial/non-residential building construction appears set to come to an end as a combination of higher interest rates, constraints on government budgets, structural weakness in office and retail markets and higher costs for materials and workers constrain both government and private investment. However, bright spots will include, healthcare, train stations as data stations amid a reasonable range of new projects relating to wellness and hospital redevelopments, elevated levels of railway construction and increasing data requirements.
• In mining and heavy industry, strong activity is expected over the next few years as interest in critical and strategic minerals to support the clean energy transition is boosting activity supported by ongoing development in traditional mining activities such as iron ore, gold and copper.

(Located in the Gloucester Valley around 95 km north of Newcastle in NSW, Yancoal Australia’s proposed Stratford Renewable Energy Hub includes a 3.6GW pumped hydro energy storage project and an initial 320MW AC solar farm that would be developed on and adjacent to the Stratford Mining Complex on Yancoal-owned land. Valued at $1.26 billion it is one of a huge range of large-scale renewable energy and storage projects which are under consideration as Australia aims to achieve 82 percent renewable penetration in its electricity market by 2030.)

Describing the outlook as ‘finely balanced’, ACIF Forecast lead Kerry Barwise cautioned that the forecasts are subject to risks.

But he added that there is potential for activity to surprise on the upside.

“There are many factors that could disrupt the finely balanced outlook,” Barwise said.

“There is a grave risk that fiscal policy and monetary policy settings will continue to pull in opposite directions. Interest rates may remain elevated for longer, suppressing residential building activity for longer. The surge in clean energy may not play out as expected.

“(But,) Not all of the risk is on the downside.”

Enjoying Sourceable articles? Subscribe for Free and receive daily updates of all articles which are published on our site

Want to grow your sales, reach more new clients and expand your client base across Australia’s design and construction sector?

Advertise on Sourceable and have your business seen by the thousands of architects, engineers, builders/construction contractors, subcontractors/trade contractors, property developers and building industry suppliers who read our stories across the civil, commercial and residential construction sector