Building activity constrains growth
TOTAL Australian building commencements are forecast to edge down one per cent in 2006/07, due to a further decline in residential building activity and marginal growth in non-residential building in response to tightening interest rates.
Total building commencements increased an estimated two per cent in 2005/06, states BIS Shrapnel’s Building in Australia, 2006 to 2021 study. An estimated five per cent decline in residential building activity was offset by an expanding number of commercial and social non-residential building projects.
The value of national dwelling commencements is forecast to decrease by four per cent in 2006/07, due in part to an expected 0.5 per cent rise in interest rates. At the national level, building costs increased six per cent per annum from 2002/03 to 2005/06, due to rising material costs and shortages of skilled labour.
Major downturn anticipated
The pipeline of residential projects has dwindled, however, particularly in NSW and Victoria where there is evidence of builders being under-employed. This situation will lead to more competition among residential builders in most states in 2006/07, forcing growth in building costs down to the lowest rate since 2001/02.
In this environment, enthusiasm for renovations should gradually pick up, and the national volume of activity is projected to rise in 2006/07 (up two per cent) and 2007/08 (up three per cent).
Offset residential
The value of non-residential building commencements continued to rise in 2004/05 (up eight per cent) and 2005/06 (up 12 per cent), providing a critical offset to the softness in residential building.
Non-residential building commencements will increase a further two per cent in 2006/07 – the highest value reached since 1988/89.
This peak in activity is driven by strong expansion in Queensland and WA, where solid employment growth and healthy government finances are providing the foundation for a surge in the number of projects.
Office building commencements are estimated to have rebounded 32 per cent in 2005/06 as vacancy rates dropped. A further 12 per cent increase in activity through 2006/07 is forecast, as corporate profits remain healthy, before activity levels-out in 2007/08. Following the peak in activity, a major downturn of 50 per cent over the three years to 2010/11 is anticipated.
Record investment levels
The buoyancy of retail commencements is due to ongoing refurbishment and large extensions to major suburban shopping centres, and the occasional new CBD or regional shopping centre. Following a record value of commencements in 2005/06, slower growth in retail sales is expected to result in a drop in commencements over the two years to 2008/09.
The hotel building sector is forecast to record a 30 per cent fall in commencements during 2005/06 as a result of weakening occupancy rates in NSW producing a 52 per cent plunge in hotel commencements in the state.
An anticipated improvement in tourist numbers will drive a 48 per cent rebound in commencements in 2006/07, with activity to peak at $1.42 billion.
Factory, education, entertainment and recreation and health building commencements are all forecast to grow over the next five years, and education commencements should reach a new record level of $2.68 billion in 2005/06.
Source: Construction Contractor
25-Aug-2006