Construction trends continue to build up

Australia’s construction sector is continuing to expand. The Australian Industry Group (Ai Group) and Housing Industry Association’s Australian Performance of Construction Index for January 2018 marked industry-wide growth for a 12th consecutive month, while Ai Group’s November 2017 Construction Outlook predicted a positive position for the sector throughout 2018/2019.

January 2018 marked a full year of monthly growth for Australia’s construction sector, according to research by the Ai Group. The Australian Industry Group is an employer organisation that represents traditional and emerging industry sectors.

The group releases a monthly construction update for industry, as well as a bi-annual survey conducted in association with the Australian Constructors Association, that highlights key trends and the current condition of the construction sector.

Sector continued to grow in early 2018

The January 2018 Construction Index found that commercial construction was the highest performing area in the sector, which the report attributes to, in part, factors such as property investor sentiment and improved business conditions.

The report breaks the industry down into four construction sub-sectors; commercial, house building, apartment building and engineering construction. While commercial was the strongest performing (up 7.4 points to 58.9), house building also continued to expand but moderated for a second month (down 2.5 points to 52.0), while apartment buildings growth remained unchanged  (50.7 points) and engineering construction’s expansion slowed (down 3.4 points to 53.5).

Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

One interesting finding was that the employment sub-index accelerated to its fastest pace in six months, while capacity utilisation hit a record high of 83.4 per cent — its highest since at least 2008 when this data series began.

The other two main findings from the January 2018 report were:

  • Overall construction activity was largely unchanged, with its continued expansion associated with further growth in deliveries from suppliers. The new orders sub-index returned to growth after drifting into mildly negative territory in December 2017, revealing an improvement in demand
  • The input prices sub-index retreated from December’s nine-year high but remained elevated, while growth in wages continued. The selling prices sub-index increased by 0.3 points to 58.9, suggesting that cost pressures are being passed on, but not broadly given strong market competition

What’s predicted for 2018/2019?

The Ai Group’s most recent Construction Outlook (November 2017) looked at the state of the engineering and non-residential building sectors on a national and key market basis. The report is created based on the responses of 100 companies with combined turnover of almost $30 billion, or approximately 30 per cent of total industry activity.

Some of the key construction predictions for the 2018/2019 financial year include:

  • Turnover from all major construction work is forecast to continue to expand by 6.8 per cent in the 2018/19 financial year as public-sector capital works programs continue to support high levels of activity
  • Engineering construction is expected to grow by a further 10.6 per cent in 2018/19. This reflects a strong increase in infrastructure-related engineering due to robust growth in road and rail projects led by major rail and road projects that are starting to ramp up, especially in the eastern states. Growth is also expected to remain positive in pipelines construction,
    telecommunications and in other civil projects
  • Resources-related engineering construction is predicted to decline due to weakness in the oil and gas processing sector. However, mining-related construction is expected to stabilise following the mining investment downturn
  • In line with the trends seen in the January 2018 Construction Index, commercial construction is predicted to record a stronger upturn in 2018/19. This will be due mostly to private sector building activity, but there will also be a strong drive of public building activity thanks to planned state government education and health building projects.

These predictions, coupled with the continuing upwards industry trajectory seen in the results from the monthly, and most recent, Construction Index show the future for Australia’s building and construction industry, especially commercial construction, is only going to continue to get stronger.

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