The coming cycle in Australia’s construction sector will be partially offset by ongoing strong growth in maintenance1 activity, said leading industry analyst and forecaster BIS Shrapnel .
BIS Shrapnel warns construction companies they should be starting now to build up a presence in the maintenance sector as it will be a strong area of activity beyond the next downturn in construction.
According to BIS Shrapnel’s Maintenance in Australia, 2005 to 2020 report, the massive investment in infrastructure, buildings and mines over the past decade, will form the basis of a sustained upswing in maintenance activity. The increase in the asset base is being accompanied by rising rates of utilisation of assets and rising incomes and budgets for maintenance work. And in many areas, there is considerable catch-up maintenance work to be done, following many years of under-spending. For companies already servicing the maintenance sector, planning will be essential to ensure they have the ongoing capacity to meet demand.
Project manager and Senior Economist, Nigel Hatcher estimates the maintenance of Australia’s infrastructure, non-residential buildings and industrial facilities to be worth $26 billion per annum, with slightly more than 50 per cent of this work outsourced. The largest sectors for maintenance activity are non-residential buildings, heavy manufacturing, roads, mining and light manufacturing.
“Overall maintenance activity is forecast to grow over the next five years in the road, rail, port, electricity, gas pipeline, defence, heavy manufacturing, light manufacturing and non-residential building sectors,” said Hatcher. “Maintenance activity in the mining sector will grow the strongest, while activity in the telecommunications sector will be subdued.”
The maintenance market will continue growing strongly into the medium term, according to Hatcher, with the peak of the cycle forecast for 2007/08. However, a mild decline is forecast to follow in 2008/09, prompted by a weakening economy, tighter government funding and a round of new assets being completed (which will replace old assets and not require as much maintenance support).
While maintenance is not as volatile as the construction sector, it can still be quite cyclical year-to-year. This volatility is driven by three factors in particular, the first being the degree of utilisation of the asset. The second is the impact of irregular types of maintenance such as large periodic maintenance projects or major shut-down maintenance. The final influence is the flow-on effect of fluctuating budgets on scheduling base and routine maintenance — both at an organisational and governmental level.
1) Maintenance is defined as activity which is aimed at either preserving or improving the standard of an asset, but not improving it above its original state. (Any work which improves on an asset, or adds to it, above its original design, is considered to be construction rather than maintenance). The report covers the maintenance of all built assets (excluding residential dwellings), but does not include the maintenance of many types of equipment, such as motor vehicles, railway rolling stock, ships and computers.