The outlook for construction activity in Queensland is finally improving as analysts expect recovery work and a strengthening mining sector to drive an upsurge in activity over the next two years.
Sluggish conditions have prevailed in recent times. Overall construction activity declined by 3.2% in 2009-10 and is expected to decline a further 0.5% this financial year, according to the National Institute of Industry and Economic Research (NIEIR). Worse still, information from construction information service provider BCI Australia indicates that construction starts dropped away badly in the second half of last year (see chart).
Nevertheless, a brighter future lies ahead. As shown in the chart, BCI expects construction starts to skyrocket in April to more than double any level seen over the past twelve months. NIEIR expects healthy growth of 4.3% for the sector in 2011/12. BIS Shrapnel, too, is bullish, believing that mining related construction growth of 30% in the next two years will drive strong overall activity.
Along with the expected growth in mining, Queensland’s construction sector is expected to reap significant benefits the estimated $8.9 billion to be spent on short term repairs and long term key infrastructure projects following last summer’s natural disasters.
That said, the disasters have a negative side. Brisbane’s $7.7 billion Cross River Rail Project, for example, has been put on hold for several years in order to help pay for flood repairs.
Mining to lead
The upbeat assessment of mining from BIS is underpinned by a strong pipeline of major projects. Last month, Australia Pacific LNG received environmental approval for its $35 billion coal seam gas (CSG) to liquefied natural gas (LNG) project. In January, the GLNG partners gave the go-ahead for a $16 billion liquefied natural gas (LNG) project in Gladstone. Feasibility studies are in progress for Project Iron Boomerang, a $30 billion project involving the establishment and subsequent linking by rail of iron and steel smelting parks near Queensland’s Abbot Point precinct and Western Australia’s Newman Fortescue River Valley.
As well, there are a significant number of smaller projects coming through. Not to mention the ongoing benefits from construction of the China First complex in the Galilee Basin resulting from Resourcehouse Ltd’s landmark twenty year agreement to deliver 30 million tonnes of coal annually to China Power International Development Ltd (CPI).
Activity is also strong in construction of water and sewerage facilities. According to the Australian Bureau of Statistics (ABS), the value of work done in this sector during the September quarter 2010 totaled $626.5 million – up 35.5% on the corresponding figure one year earlier ($462.4 million). The value of work yet to be done stood at $1.635 billion – the highest level recorded since September 2008.
Some new projects are coming through, although their value is not particularly large in the context of overall activity levels. These include the $105 million upgrade of Goodna Water Reclamation Project and the $30 million Innisfail Sewage Treatment Plant (work for which started last year and is expected to be completed in December 2011).
In transport, as well, there are a reasonable number of projects in the pipeline – even though conditions were subdued in 2010 and the delay to the Cross River Rail Project was a cruel blow to the sector. Aside from rail works associated with the Iron Boomerang Project referred to above, these include a $2 billion rail corridor in the central western part of the state to open up mining projects in the Galilee Basin; a $1.3 billion dredging and disposal project at Gladstone Ports; the prospect of a high speed rail network along Australia’s east coast; a $949 million rapid transport project on the Gold Coast; a $332 million upgrade to the Port of Brisbane Motorway; and the $1.15 billion Moreton Bay Rail Link project.
That’s not to mention ongoing activity associated with Airport Link, which is scheduled for completion in mid-2012.
The residential sector, by contrast, has performed dismally in the past couple of years. Activity in this sector declined by 3.6% in 2009/10 and is not expected to register any growth in 2010/11, according to NIEIR. Worse, BIS forecasts that dwelling approvals in 2010/11 will be 18% below those of the previous year, and will even be 10% below the lows experienced during the GFC.
However, there are signs of life going forward. BCI expects that the value of construction starts in April and May will amount to $352 million and $407 million respectively – well above levels experienced any time since 2010. Moreover, forecasters are optimistic about prospects for a rebound 2011/12. NIEIR is forecasting an increase in activity of 13%. BIS expects the number of dwellings approved to rebound by 30% by 34,200, although even at this level, approvals would still be 25% off their peak in 2007/08.
There are few signs of life, however, in the commercial sector. Construction starts, which have been flat since April, are 36% below their twelve month long term average, according to BCI. Worse. Approval figures are downright ugly. The value of office building construction approved in January ($10 million) was less than half of that recorded during any month last year.
Retail is faring better. The value of construction starts in this sector in February ($154 million) was a long way higher than at any time last year. The approval last month of a $2.9 billion redevelopment of Ekka Showgrounds in Brisbane should give a further boost to this sector. Expansion plans of hardware retailer Bunnings, which recently appointed real estate advisory firm Saville Pty Ltd to help it find an extra 30,000 square meters of space for planned new stores, are also positive.
Subdued conditions remain in the industrial sector. Starts have been flat since June and are 57% down on long term trend. The value of approvals in December and January, $18.5 million and $25.2 million respectively, were the lowest and third lowest levels seen throughout the past twelve months. The only real sign of life in this sector is Boulder Steel’s $2.8 billion Gladstone Steel Plant Project, the environmental impact statement for which is expected to be lodged in the second quarter of 2011.
Activity remains flat in the healthcare, sport and landscape sectors. According to BCI, starts in the ‘community’ sector, which incorporates healthcare and all recreational facilities, are down by 30% on the twelve month long term trend for this category. BCI does expect a 90% rebound over the next three months, but starts in summer were well down, so this is coming off a low base. The sporting sector will not be helped by the news earlier this month that Racing Queensland’s plans for the redevelopment of Ipswich Turf Club will be put on hold as a result of a legal dispute.
Activity is winding down in construction of public sector buildings as the effect of the National Economic Building Stimulus Plan subsides. Not surprisingly, the value of construction starts in education has plummeted from as high as $438 million as recently as August to just $67 million in January. Furthermore, the value of approvals for public sector buildings registered just $201 million in December and a mere $122.1 million in January – far lower than at any other time over the past twelve months.
Overall, however, Queensland appears set for a recovery in construction activity over the next two years.