Major construction on track for upturn

The Australian Industry Group and Australian Constructors Association are predicting a solid upturn in major construction project work through to mid-2019, following three years of declining construction activity. 

A key driver of activity will come from non-mining infrastructure work in line with the significant growth impetus from public sector spending on transport infrastructure projects and higher levels of private sector investment in commercial building, according to the latest Australian Industry Group/Australian Constructors Association Construction Outlook survey. 

After dropping by 2.1% in 2016–17 (current prices), the total value of major project work is forecast to rise by a solid 7.1% in 2017–18, followed by a further lift of 6.8% in 2018-–19, according to the survey. 

"The survey suggests the worst of the decline in mining-related construction is now behind us, along with its negative impact on broader industry conditions. Rising momentum in new road and rail projects, together with telecommunications infrastructure including the nbn, will also support a strong upswing in the value of engineering construction, which is expected to rise by 8% in 2017–18 and a further 10.6% in 2018–19 after shrinking by 6.5% in 2016–17," said Australian Industry Group Chief Executive Innes Willox.

"This is very positive for the construction industry businesses, their employees and contractors and the mining, manufacturing and service businesses active in construction supply chains. Governments and training providers should be taking notice of the emerging skill shortages in the construction sector and be quick to respond with changes to relevant training and immigration categories," Willox said. 

Australian Constructors Association (ACA) Executive Director Lindsay Le Compte said NSW and Victoria are powering ahead with much-needed construction to support metropolitan and regional infrastructure needs. The larger infrastructure projects will also support additional construction and commercial development along project corridors and provide essential support to the wider construction sector, Le Compte said.

In other survey findings, commercial construction is forecast to pick up, with the survey pointing to a strong pipeline of work over the next two years, recovering from a broadly stable 2016–17 to increase by 1.8% in 2017–18 and a further 9.4% in 2018–19, according to the survey.

Conditions also remain strong for multilevel apartments in 2017–18 (+18.9%), as construction companies continue to work through a solid backlog of work. But this is seen as the peak year in the current cycle, with activity set to turn down sharply in 2018–19 (-15.4%).

Following a decline of 2.7% in the previous 12-month period, total employment in major construction recovered by 3.1% in the year to July 2017, reflecting the upturn in non-mining infrastructure investment in 2016–17. Improvement in overall activity is expected to underwrite continued job gains in the year ahead. 

The survey found that businesses are reporting worsening labour shortages, with 63.6% of respondents reporting either 'major' or 'moderate' difficulty in recruiting skilled labour in the six months to September 2017, up from 39.2% in the previous six months. Sourcing of subcontractors has also grown as a key concern, with the proportion experiencing 'major' or 'moderate' difficulty increasing to 50% in the six months to September 2017, up from 39.2% in the previous period.

"Labour costs remain a source of pressure for the construction of infrastructure and building projects, with heightened labour cost pressures expected to be exerted in 2018 as major projects ramp up and contractors increasingly compete for the same pool skilled labour," according to the survey

"The sourcing of building materials was of greater concern for the industry in the six months to September 2017, with 45.5% of respondents citing 'major' or 'moderate' difficulty, up from 21.7% six months earlier."