Australia's non-residential building sector 2015 Q1: Andrew Hanlan
The ABS quarterly survey “Building Activity” provides detail on the non-residential building sector. Here we reassess conditions and prospects for the sector, with a greater focus on the private segment, which accounts for 78% of activity. Hereafter ‘building’ refers to ‘non-residential building’.
In summary, the strengthening of private building activity in recent years will be punctuated in 2015 by a relatively modest downturn. Approvals took a step lower in 2014, but have stabilised more recently, with falls in offices, retail and industrial, following a wave of projects and against the backdrop of mixed domestic demand conditions. The looming near-term slowing of building activity will be uneven, with declines greater in the mining states of WA and Qld, where the spill-over effects of the mining investment downturn will be most felt.
Activity: Total building activity advanced by 1.3% in the March quarter, to be 0.7% above the level of a year ago.
Private building activity has been in an upward trend for four years, with gains as follows: +9.9%yr in March 2012; +2.7%yr in March 2013; +3.8% in March 2014; and +9.6%yr in March 2015.
In the March quarter, private work expanded by 3.5%. This rise was supported by the sizeable work pipeline and was despite the recent softening of commencements. Activity is unlikely to be sustained at the current $6.9bn per quarter, which is 12% above the level of commencements.
Public works have eased back to more normal levels in the aftermath of the Federal Government’s 2009/10 fiscal stimulus package. In the March quarter, public works declined by 5.5% to be 22% lower than a year ago.
Total commencements were valued at $7.4bn in the March quarter, continuing the softer tone evident since the second half of 2014.
Private commencements were $6.1bn in the quarter. If there is a similar outcome in the June quarter, then commencements for the 2014/15 financial year will be down 16% on 2013/14. That is broadly in line with the weakening of approvals, which in the six months to May 2015 were 18% lower than at the start of 2014.
The sizeable pipeline of work outstanding is being gradually reduced. For the private sector, the pipeline declined by $1bn over the past year, to $18.3bn, as work progressed on office, retail, health and industrial projects - partially offset by a lift in the pipeline for social infrastructure, such as entertainment.
The pipeline of work for public works is currently $4.9bn, down from $6.6bn a year ago.
Andrew Hanlan is senior economist for Westpac and can be contacted here.
