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Infrastructure is a Key Driver of Construction Demand in 2019

December 17, 2018 by Jobsite Editorial

The latest Australian Construction Industry Forum (ACIF) report found that building and construction work activity in 2017 and 2018 grew to $247 billion—almost as high as the peak achieved at the height of the mining boom. Building and construction activity now accounts for 14 per cent of GDP. The main drivers for construction increases were infrastructure growth and non-residential building.

We expect the rollout of major infrastructure projects in railways, roads, electricity, water and sewerage to continue. 

“The outlook for the next few years is finely balanced. We expect the rollout of major infrastructure projects in railways, roads, electricity, water and sewerage to continue. Meanwhile, construction work in heavy industry including mining will return to an underlying down-trend over the next two years,” said Bob Richardson, Chair of ACIF’s Construction Forecasting Council, responsible for overseeing the production of the ACIF Forecasts.

While infrastructure construction is on the rise, residential building growth is in a decline. According to the ACIF report, building activity dropped by 0.5 per cent last year (2017–18) bringing the value of work done to $101 billion. Completing work already in the pipeline will keep levels where they are for the remainder of this year, but falling house prices will result in a decline between 2019–2021.

More Construction, More Jobs

Over the next three years, construction industry growth will be driven by infrastructure and non-residential building, according to the newest Rider Levett Bucknall (RLB) International Report. The RLB study also found that construction activity in NSW has risen throughout 2018, with smaller rises expected until 2021.

“The Australian economy has entered its 27th consecutive year of growth, exceeding expectations and rising at the fastest pace in six years. Real GDP is forecast to accelerate to above 3.0 per cent for 2018 and 2019,” said Ewen McDonald, Oceania Chairman of RLB.

Building and construction work is expected to provide 1.2 million jobs this year. This accounts for around 10 per cent of total employment in Australia. AICF expects employment rates to decline by approximately 1.6 per cent next year. Although infrastructure projects will increase in 2019, they won’t be enough to offset residential building declines as residential building is a far more labour-intensive sector of construction.

Even with declines across residential construction, the RLB report found that limited resources are an issue, particularly in NSW, with design consultants and contractors reporting difficulties in finding staff. There is also a considerable demand for tradespeople to meet the current pipeline, putting pressure on wages and pricing.

Engineering Work Rising

Victoria is also experiencing growth in infrastructure projects, according to McDonald.

 “There is strong confidence within the Victorian construction industry, with both building work and engineering work done rising substantially over the past year.”

Victoria is experiencing a transition with engineering work increasing its contribution to total construction work.

“With the commencement and announcement of a few significant civil/infrastructure projects in Melbourne, a jump in construction costs and limited resources is currently being experienced and expected to continue during 2019. However, it is anticipated that the market will stabilise with the completion of these large building projects towards the end of 2019,” McDonald explains.

Queensland has also experienced residential building. However, this has been offset by engineering work rising. As Ewen said, “We have seen Brisbane construction costs flatten during 2018 due to the slowdown in the pipeline of residential work. As work picks up for the Queens Wharf and other large projects, it is expected that the tendered cost of Tier 1 subcontractor trades to increase, due to the limited number of subcontractors available to tender.

“The Gold Coast economy is now in a post-Commonwealth Games phase and is very dependent on future infrastructure expenditure on the M1 Motorway and Stage 3 of the Light Rail,” he added.

In South Australia, public sector projects remain very active with a strong pipeline. Many large civil projects are under construction, and RLB is predicting that prices for head and trade contractors will exceed inflation forecasts. There will also be an increase in demand for engineering services trades.

Construction Growth in Perth

In Western Australia, Perth is expected to experience higher construction volumes from 2019. There are many infrastructure projects in the pipeline including two primary arterial roads, the Mitchell and Kwinana Freeways, undergoing significant upgrades.

The RLB report found the Northern Territory’s construction industry remains flat, but some defence projects are coming to fruition. Meanwhile, the Territory Government has awarded 215 contracts since July 1 this year, with over 85 per cent of these going to Territory enterprises.

The ACT has seen sustained growth in infrastructure and urban renewal projects. However, it is expected that this level of growth will not be sustainable in the medium to long term. RLB expects construction cost growth of 3.2 per cent for next year.

For 2019, RLB is forecasting construction cost growth of 4.0 per cent in Adelaide, 4.1 per cent in Brisbane, 1.2 per cent in Darwin, 3.5 per cent in Melbourne, 2.5 per cent in Perth, and 3.9 per cent in Sydney.

If you liked this article, here are a few eBooks, webinars, and case studies you may enjoy:

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Categories: Australia, More Tags: Infrastructure

Jobsite Editorial

Launched in 2016, Jobsite, Procore’s news platform, covers a mix of engaging and informative construction news, trends, tech and customer spotlights for the U.S., Australia and Canada. Contributors include construction news writers, thought leaders and industry professionals from around the globe.

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