Starting from December this year, four 100-metre long tunnel boring machines (TBMs) will begin arriving in Melbourne.

Two will be transported to North Melbourne and two will go to the site of a soon to be constructed station at Anzac on the southern CBD fringe. There, they will be assembled, lowered into a shaft 20 metres underground and launched into the earth. From there, giant cutting heads will burrow through sand and rock at a rate of about 10 metres per day.

Each TBM will head away from the city on the first leg of their journey before being retrieved in Kensington and South Yarra. They will then be dismantled, trucked back to their starting point and relaunched toward the city.

The scale of the Melbourne Metro Tunnel project should not be underestimated. Costing around $11 billion, the development will deliver twin nine-kilometre rail tunnels from the west of the city to the south-east as part of a new Sunbury to Cranbourne and Packenham Line, five new underground stations, high capacity signalling and train/tram interchanges between the new Anzac Station and the Domain Interchange in the inner south-east.

At peak construction, around 7,000 workers will be on site. All up, around 55,000 pre-cast concrete segments will be used simply to line the tunnel.

That is far from the only project lifting Victoria’s infrastructure sector. Other developments underway include the level crossing removal program and the widening of CityLink and the Tullamarine Freeway. The sector will be further helped along in coming years by the West Gate Tunnel and North East Link. In its May Budget, the Victorian government announced a $13.7 billion spending program for infrastructure in 2018/19.

victoria construction

Nor is infrastructure the only area in which projects are happening. Last October, Cbus turned the first sod on its $1 billion Collins Arch project through which it will construct two 39-storey commercial towers joined together by a skybridge in Collins Street in the Melbourne CBD.

In retail, a major redevelopment of The Glen in Melbourne’s south-east is underway. Further shopping centre makeovers are possible at Westfield Doncaster, Westfield Knox and the Jam Factory and the Como Centre in South Yarra. New outer urban shopping centres or town centres are possible in Craigieburn, Melton South and Armstrong Creek.

Bottom line, Victoria is in the midst of a construction boom. In its latest forecast, Australian Construction Industry Forum (ACIF) said it expects the dollar value of work done on building and civil infrastructure construction throughout the state to come in at $52.883 billion in 2017/18. Compared with the $42.397 billion recorded as recently as 2013/14, this is up by a quarter.

Going forward, ACIF says it expects activity to remain at or above $52 billion in coming years. This is notwithstanding an anticipated drop in residential and apartment construction as the boom in multi-residential building tapers off.

Supporting this is strong population growth and a robust economy. In the year to September 2017, the state added a net of 147,400 people or 2.4 per cent to its population – a faster growth rate compared to any other state by miles. Building the infrastructure which will support these people along with the houses and apartments in which they will live and the offices, shops, factories, schools, hospitals, and entertainment facilities in which they will work, learn, receive treatment, eat, drink and play will be a massive task which will keep the builders busy.

That population growth is one of several factors driving the state’s economy. All up, Victoria’s economy expanded by 4.5 per cent across calendar 2017 (state final demand), almost double the 2.4 per cent growth rate recorded nationally. Over the past two years, the state has added more than 177,000 employees and self-employed workers to its payroll (public and private). Unemployment sits at 5.3 per cent – the second lowest rate in the country.

This is driving developer confidence. Indeed, participants in the latest Property Council of Australia/ANZ Property Industry Confidence Survey expressed greater optimism in respect of prospects in Victoria over the next 12 months than what has been the case at any stage during the survey’s seven-year history.

This is good news for workers. Over the past year alone, ABS data indicates Victoria’s construction sector has added a whopping 44,100 people to take its payroll from 264,100 over the three months to February 2017 to 308,200 in the three months to February this year. This represents the highest level on record by miles.

That said, these massive levels of activity are also placing pressure on capacity and costs. In its latest forecasts, quantity surveying firm WT Partnership says it expects price escalation for construction tenders on major civil infrastructure projects in the realm of four to five per cent over calendar 2018 followed by 4.5 per cent to 5.5 per cent in 2019.

Already, WT said, the availability of specialist consultants, subcontractors, suppliers, plant and equipment is tight. This will worsen in 2018, it reckons.

Moreover, as the pipeline of infrastructure developments reaches construction in parallel, WT says there will be large scale demand for materials such as concrete aggregates, reinforcement and steel. This will lead to cost escalation across multiple parts of the industry – a situation likely to continue until the total value of infrastructure works reached its peak throughout the period spanning 2021 to 2023.

Kerry Barwise, director of Barwise Consulting and lead forecaster on ACIF’s Construction Forecasting Council, said Victoria’s construction sector is benefiting from a shift in the economy and population away from resource states as well as strong migration into Australia.

He says benefits will be widespread. Even sectors such as education, Barwise says, will benefit as we build more schools and spend more on university upgrades.

As for residential, Barwise acknowledges that Victoria will experience downward adjustment from the recent boom in apartment construction, but he says the state’s adjustment will not be as deep as that experienced in other states. Moreover, as long as employment and population keep growing, he says residential construction will eventually return to growth.

“Economic activity is shifting from the North and West to the south. Building activity is coming along with it,” Barwise said. “WA, NT and Queensland have virtually got no growth. Here in Victoria, along with the ACT, we are in the lead.

“The other thing that is happening is that we are seeing about 400,000 people per year turn up in Australia from natural growth and immigration. Victoria is the winner in attracting the most people. That’s about 150,000 people. That’s massive.”

Moving Sectors:

In key sectors, according to ACIF:

  • Having risen from $8.516 billion in 2013/14 to $10.679 billion in 2016/17, the value of work in new detached houses will remain at elevated levels over the next two years before increasing to $11.604 billion in 2020/21.
  • Having soared from $5.854 billion in 2012/13 to an expected $8.887 billion in 2017/18, the value of work in units, apartments, townhouses and other forms of multi-residential housing has peaked and will now drop back to less than $7 billion in 2019/20.
  • Having more than tripled from $189 million in 2014/15 to a forecast $622 million in 2017/18, activity the hotel and accommodation sector will drop back but remain at historically elevated levels of $510 million and $545 million in 2018/19 and 2019/20.
  • Thanks partly to a significant public spend and also a good number of projects in the tertiary sector, the value of work done in education is expected to have jumped from $1.263 billion in 2015/16 to a forecast $1.990 billion in 2017/18. Going forward, activity will remain at these historically elevated levels from 2017/18 to 2019/20.
  • Thanks to a good pipeline of projects (warehouses, for instance), the value of work done in industrial is set to rise from $1.632 billion in 2016/17 to $1.914 billion by 2018/19 before easing back thereon after. This is more than double its relatively paltry level of $872 million in 2013/14.
  • Retail is part-way through a four-year growth spurt which will see activity rise from $13.77 billion in 2014/15 to almost $2 billion ($1.977 billion) in 2018/19 and remain at elevated levels thereon after.
  • Having jumped from $1.616 billion in 2017/18 to a forecast $2.236 billion in 2018/19, offices are expected to rise above $2.3 billion in 2019/20 and remain that way for several years.
  • In civil construction, transport is a massive sector of growth amid significant levels of public sector investment. Having risen from $1.920 billion in 2014/15, activity in roads is expected to hit $3.423 billion in 2017/18 and rise to a peak of almost $4 billion by 2019/20. Having bottomed out at horrible lows of $99 million in 2014/15, meanwhile, activity on rail, bridges and ports is expected to have almost doubled to $1.821 billion in 2017/18 and is anticipated to reach $2.294 billion in 2020/21.
  • Having bottomed out at $715 million in 2016/17, the value of work on water and sewerage facilities is expected to have surged by 40 per cent in 2017/18 to reach $1.001 billion. Going forward, activity is expected to grow by a further 21.5 per cent over the next two years to reach a peak of $1.216 billion in 2019/20.