NSW heads to recovery but others catch the construction blues: BIS Shrapnel

Building construction activity is expected to pick up strongly in NSW over the next two years, according to forecasts by BIS Shrapnel. 

Growth of 15% and 14% is forecast in NSW over the next two years to 2013, compared with national growth of 8% and 1%. 

“Very strong growth” in residential construction and a strengthening of non-residential activity – both coming off a very low base – will drive the recovery in NSW, BIS Shrapnel estimates. 

In contrast, construction activity in Queensland will stagnate over 2011-12, growing by just 1% over the period, but will pick up over 2012-13, accelerating by 16%, according to the forecast. 

A drop in residential activity in Queensland 2011-12 will be followed by a “sharp rise in residential construction in 2012-13, with both detached house and higher density projects contributing” the research group has forecast. 

Alterations and additions will also support building in Queensland in 2011-12 as housing is refurbished after being damaged by floods and cyclones across the state in early 2011, the company says. 

Non-residential commencements in Queensland are anticipated to weaken in 2011-12 as spending on education and health projects winds back to more historically normal levels, before showing a small rise in 2012-13 as commercial and industrial building improves.

Source: BIS Shrapnel

BIS Shrapnel forecasts the value of new residential building commencements to rise by 10% over 2012-13 on the back of an accelerating economy. 

The research group attributes the 12% national decline in building activity over 2010-11 to the winding down of construction related to the “Building Education Revolution” program. 

This fall-off more than offset the emerging recovery in commercial and industrial building, which is forecast to continue to underpin overall growth in 2011-12. 

“The continuing recovery in commercial and industrial building – up 21% – will be a key driver of the improvement in building commencements in 2011-12, while increased construction in the health sector – up 73% – will also play a part,” says BIS Shrapnel managing director Robert Mellor. 

“With the Australian economy largely recovering since the GFC, the environment has become more conducive for commercial and industrial development. There is also $7 billion in new hospitals and other health care facilities due to commence in 2011-12, particularly in Victoria, Queensland, South Australia and Western Australia.” 

According to Mellor, the contribution from residential building is forecast to be minimal in 2011-12 after being negative in 2010-11 due to the decline in activity after the expiry of the first-home owner’s grant boost scheme, as well as the winding down of the federal government public housing stimulus. 

The decline is expected to more than offset an otherwise healthy rise in multi-unit residential starts. That rise is largely due to the improved financial environment that allows developers to be increasingly able to fund apartment projects. 

Despite a weakening in net overseas migration inflows, which have fallen from a record 300,000 people in 2008-09 to an estimated 165,000 in 2010-11, Mellor says “construction nationally still remains below the level of underlying demand, although in some states the market is closer to balance”.

Gains are expected to be roughly felt equally across new houses and multi-unit dwellings, with the upturn concentrated in Queensland, Western Australia and New South Wales. 

However, the residential building upturn is expected to be short-lived, with BIS Shrapnel forecasting the value of residential building starts to decline by 15% during 2013-14 and 2014-15.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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