After lifting by 9.0% in 2017-18 (current prices), the total value of non-residential construction work is forecast to rise by 5.4% in 2018-19 and a further 3.8% in 2019-20.
The outlook also points to large falls in revenue from multi‑level apartment work (expected to decline by 4.8% in 2018-19 followed by a sharp contraction of 17.6% in 2019-20) and oil and gas project activity (down 54.8% in 2018-19, but moderating markedly to -2.0% in 2019-20 with the worst of the decline in mining-related construction appearing to have passed).
Australian Industry Group Chief Executive, Innes Willox, said: "Major construction activity and employment levels look set to continue to grow over the next year and a half, largely off the back of the large volume of infrastructure work. This is despite sharply lower levels of engineering construction in the oil and gas sector; further easing of mining sector activity; and an accelerating slowdown in residential apartment building. While there are swings and roundabouts within the sector, capacity constraints at the aggregate level are intensifying. Businesses are reporting rising difficulties in sourcing skilled personnel and machinery and equipment and rising input costs. The sector would be further constrained if there were any additional restrictions to accessing temporary and permanent skilled migrants to supplement their local workforces," Mr Willox said.
Australian Constructors Association (ACA) Executive Director, Lindsay Le Compte, said: "The pipelines of infrastructure projects projected in the Construction Outlook will assist the industry plan its future activities. The pivotal challenge for governments will be in ensuring that infrastructure projects are delivered as part of a consistent pipeline of construction activity. This will help address capacity constraints and enable major projects to be funded and developed in a timely manner.
"A clear theme from the survey is the widespread difficulties faced by businesses in the sourcing of skilled labour, building materials and equipment. These supply constraints are being reflected in increases in a range of input costs which are adding to pressures on margins and heightening the exposure of businesses and clients to project cost overruns,” Mr Le Compte said.
In other survey findings the value of engineering construction is expected to increase by 6.5% in 2018-19 and a further 8.0% in 2019-20, with conditions supported by a continuation of solid public-sector spending on transport infrastructure projects despite the further falls in mining and oil & gas work.
Commercial building activity (including offices, retail buildings and industrial premises) is poised for continued moderate growth over the next two years in line with rising private - and public-sector investment, increasing by 8.7% in 2018-19 and 6.3% in 2019-20 following an 8.2% increase in 2017-18.
Key Points from the Ai Group / ACA Construction Outlook survey:
TURNOVER FROM MAJOR CONSTRUCTION WORK: Outlook at a glance
|Total major construction
- The latest Australian Industry Group/Australian Constructors Association Construction Outlook survey indicates that after lifting by 9.0% in 2017-18 (current prices), the total value of non-residential construction work is forecast to rise by 5.4% in 2018-19, and a further 3.8% in 2019-20.
- While the mining investment downturn remains a drag on industry conditions, its negative impact is diminishing as the decline in resources-related engineering construction is expected to have largely run its course by 2019-20, with the decline in construction on oil and gas processing projects to moderate markedly to -2.0% from -54.8% in 2018-19. A slight recovery in mining-related construction is also forecast to emerge in 2019-20 (+2.3%, up from -7.9% in 2018-19) as investment in new mine capacity lifts in response to improving commodity prices and a turnaround in exploration activity.
- Higher levels of infrastructure and commercial building work will support continued job gains across the industry, with total employment expected to rise by 3.8% from July-December 2018 and a further 4.4% over the six months to June 2019.
- Businesses are reporting widespread and increasing difficulties in sourcing skilled labour, with 69.2% of respondents reporting either ‘major’ or ‘moderate’ difficulty in the six months to September 2018 – up from 66.7% in the previous six months. Sourcing of sub-contractors also remained a key concern, with 57.8% experiencing ‘major’ or ‘moderate’ difficulty – although this was down from 66.7% in the previous six months.
- Labour cost pressures continue to be exerted in the construction of infrastructure and building projects and are expected to be sustained into 2019, with 57.7% of respondents expecting either ‘major’ or ‘moderate’ increases in direct labour rates in the six months to March 2019 and the same percentage expecting ‘major’ or ‘moderate’ pressure on sub-contractor rates.
- The sourcing of building materials remains a key concern for the industry, with 34.6% of respondents citing ‘major’ or ‘moderate’ difficulty in the six months to September 2018, although this was slightly lower than the 38.1% of six months earlier.
- Reports of increases in construction material costs have become more widespread, with 53.8% of businesses reporting ‘major’ or ‘moderate’ increases in the costs of materials in the six months to September 2018, compared to 47.6% six months earlier. This reflects higher commodity prices and a lift in demand requirements due to the continuing rise in infrastructure investment activity.
Link to full report
Ai Group: Tony Melville – 0419 190 347
ACA: Lindsay Le Compte – 0417 481 500
Background: The Australian Industry Group Construction Outlook survey was conducted in September/October in association with the Australian Constructors Association, the peak industry body representing the nation's major construction contractors. The major construction companies surveyed employed approximately 40,000 persons with combined turnover of almost $25 billion.