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Commercial construction has finally started to expand after nine months of declining activity.
Commercial construction has finally started to expand after nine months of declining activity.

Construction swings back to growth

After a sustained period of contraction, the Australian construction industry has finally started to show signs of growth.

The August 2015 Australian Performance of Construction Index (PCI) jointly released by the Australian Industry Group (Ai Group) and the Housing Industry Association (HIA) showed a reading of above 50 points – indicating expansion – with a 6.7 point increase to 53.8 compared to the previous month. Prior to this, the PCI had been stable or in a state of contraction (below 50) for nine months.

“Continued strength in the residential sub-sectors and a lift in conditions in commercial construction underwrote the welcome return to expansion in the national construction sector during August,” Ai Group head of policy Peter Burn explained.

House building increased 4.4 points to 54.4 last month and apartment building was also in a state of expansion, albeit at a slower rate than July’s 11-month high with a 3.3 point drop to 58.7.

Interestingly, the commercial construction sub-sector also leapt 9.4 points to 54.6 after nine months of slowing activity.

Engineering construction was the only sub-sector that remained in a state of decline, which was attributed to the winding down of mining-related projects. August represented the 14th consecutive month of contraction for this sector, but the rate of decline was slower than in July, with the sub-sector’s index rising 2.9 points to 45.9.

Commenting on the positive results, Burn said, “There are competing forces affecting construction – the structural decline of mining-related projects and the surge in residential construction that has come after a lull and which is catching up on a backlog in this area.

“It is unlikely that further growth in residential activity will be significant (although it may continue at present levels for a while yet). Thus, the overall position of construction will depend on the commercial construction sector.

“It is very volatile and we do not see a fundamental reason for a surge in overall activity – although in some areas there is likely to be very solid growth.”

The rise of commercial construction

Ai Group’s research indicated that improved confidence in New South Wales’ infrastructure projects could be having a positive flow-on effect on commercial property developments in the NSW metropolitan area. It was noted that further positive flow-on effects could also be arising from the significant number of proposed railway grade separation projects in Victoria.

Health building investment levels had also been strong, with an ageing population and the spread of urban development driving demand for aged care facilities and hospitals.

The research showed, however, that there would likely be a drop in large project investment in 2015 as existing projects moved towards completion.

Ai Group predicted that entertainment and recreation building would expand over the next three years, reflecting a boost from the 2018 Commonwealth Games facilities on the Gold Coast, the new Sydney Entertainment and Convention Centre, and other sporting facilities.

Accommodation and hotel construction was also expected to increase over the next three years. This was said to be due to a strong increase in demand, with the lower Australian dollar encouraging international visitor arrivals and increasing the attractiveness of domestic travel.

‘Cautious optimism’

HIA chief economist Harley Dale said the August PCI results could be viewed with “cautious optimism”.

“A healthy August update for commercial construction is encouraging, but needs to be sustained,” he stated. “As new housing activity remains strong rather than achieving further growth, commercial construction and infrastructure investment needs to pick up the baton.”

Dale added that economic reform could also be key to sustaining expansion in the construction industry.

“Independent research clearly demonstrates that new home building is the second most heavily taxed sector in the Australian economy, and the sector also tends to be taxed in an inefficient way,” he explained. “Any economic reform that could reduce this inefficiency would have a beneficial cost impact and increase opportunities to build the housing Australia needs over the next few decades."

More reading
Construction work could soon pick up
Decline in construction performance steepens
Construction has sluggish start to 2015











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Monday, 16 September, 2019 6:43am
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