The record level of starts in Australia’s non-residential building sector during 2009/10 is set to be followed by a significant drop in 2010/11, due to a plunge in government building, according to a new report from industry research company Macromonitor.
The new edition of Australian Construction Outlook — Non-Residential Building is the latest report in Macromonitor’s series on the outlook for construction in Australia.
“The next two years will see a gradual upturn in Australia’s commercial and industrial building, but this will not be enough to offset a dramatic decline in Government building work commenced in 2010/11, says the report’s author and Macromonitor consultant, Jason Tyrrell.
The report notes that the value of total government and other social building work commenced more than doubled in 2009/10, pushing total non-residential commencements up by 37 per cent, in real terms, despite a further 26 per cent fall in commercial and industrial building.
Macromonitor predicts that 2010/11 will be the lowest ebb in the cycle for commercial and industrial building commencements, with a gradual recovery starting in 2011/12.
Tyrrell notes: “Many areas of commercial building remain dogged by oversupply and continued weak demand. Absorption of office space, guest arrivals in the hotel sector, retail turnover, demand for manufactured goods, are all improving, but are still weaker than they were two years ago during the peak of the boom in mid-2008. The renewed strength of the Australian dollar during 2010 was also not helpful for investment in some sectors.”
Macromonitor expects modest growth in commencement volumes for commercial and industrial building categories in 2010/11, gaining momentum over the following two years.
The report forecasts that an anticipated upturn in the office sector won’t gain traction until 2011/12. Tyrrell comments: “The office sector has been affected by a constrained financing environment, a large amount of space coming onto the market and weak absorption. The average vacancy rate across Australia’s major office markets is estimated to be 10 per cent as at December 2010.”
Macromonitor expects declines in office vacancy to start during 2011, and a significant recovery in office building commencements is forecast for 2011/12.
“While the commercial and industrial sector slowly picks up pace over the next two years, government building work will plunge dramatically, causing the total value of non-residential starts to remain at or below $30 billion over the medium term”, according to Tyrrell.
“From this point on, education building will fall back sharply to more normal levels, while health building will remain buoyant over the next two years, before also declining”, says Tyrrell.
The Macromonitor report notes that education building work commenced increased from less than $4 billion in 2008/09 to $15.7 billion 2009/10 (in constant 2007/08 prices). Macromonitor expects commencements of $6.0 billion in 2010/11 and then a more normal level of $4.3 billion in 2011/12.
In the health sector, Macromonitor expects 2009/10 and 2011/12 to be the peak years, but with commencements remaining high through to 2013/14. Activity will be boosted by a number of long-planned hospital projects.
“An unprecedented seven projects commenced in 2009/10, or are anticipated to commence over the four years to 2013/14 valued at $1 billion or more”, says Tyrrell.
Tyrrell concludes: “The overall outlook for non-residential building is a combination of gradually accelerating increases in commercial and industrial building and gradually accelerating declines in government work”.
On Macromonitor’s forecasts the net result will be a 28 per cent real decline in total non-residential building commencements in 2010/11, followed by a modest 4per cent recovery in 2011/12.
