With the imminent start of work on the new Royal Adelaide Hospital, along with a reasonable pipeline of other significant projects, conditions look set to improve in the healthcare construction sector in Australia.
In the short term, conditions look set to remain ugly. In the twelve months to March next year, the Construction Forecasting Council (CFC) expects the value of work done on health and aged care facilities to come in at $3.494 billion, down 11.91% on the corresponding figure for the year to March 2011 ($3.967 billion).
Approval data provides reason for caution. Not only were approval numbers soft for both May and June, but the total value of all health and aged care facilities approved in the twelve months to June amounted to just $3.072 billion – well below current levels of activity. This means that new work is coming in much slower than existing work is being done.
A closer look at these numbers, however, reveals a less pessimistic picture. For one thing, a large part of the CFC’s pessimistic outlook for the year to March is based on very weak conditions in the June quarter just passed. Starting from the second half of this year, a quarterly breakdown of the forecaster’s numbers shows a rising trend. Approval numbers are not as bad as they seem, either. Thanks to Royal Adelaide, the value of approvals in the sector during the first six months of this year ($2.130 billion) was well up on that for the same period last year ($881.5 million): new work may have come in slower than existing work was completed over the past year, but the value of new work coming in is on the rise.
Construction activity, too, paints a positive story. Thanks again to Royal Adelaide, the value of construction starts in the ‘community’ sector (health and recreation) will be up by 22% in the twelve months to September, construction information service provider BCI Australia reckons.
Moreover, a good pipeline of projects underpins expectations of a long term recovery. As well as Royal Adelaide, starts are also expected this year on the Gold Coast Private Hospital ($500 million) and the redevelopment of Box Hill Hospital ($407 million). These projects will be followed by relocation of the Princes Margret Hospital For Children in Perth ($1 billion) work on the Sunshine Coast Hospital ($940 million) in early 2013.
Because of this, the CFC expects the value of work to bounce back to $3.971 billion in financial year 2012/13 on the way to reaching $4.148 billion the following year (see chart).
Big states to lead recovery
Large states are expected to be the best performers.
In significant statewide developments, according to CFC forecasts:
• Victoria is expected to be the best performer, with activity expected to defy national trends and record a marginal increase in the twelve months to March next year from $892.7 million to $910.6 million. Beyond that, the value of work is expected to reach $966.5 million in financial year 2012/13 and $1.028 billion in 2013/14.
• After contracting from $1.102 billion to $1.049 billion in the year to March 2012, activity in New South Wales/ACT is expected to bounce back to $1.179 billion by financial year 2012/13.
• Likewise in Queensland, after an 11.7% contraction to $868.0 million in the twelve months to March next year, the value of work in Queensland is expected to reach $1.114 billion in 2012/13 as work on Sunshine Coast gets going.
• Despite the imminent start on Royal Adelaide, conditions are expected to remain flat in South Australia. Indeed, activity is set to contract from $257.8 million to $232.2 million in the year to March before returning to moderate growth in subsequent years.
• Despite the relocation of Princes Margret, activity in Western Australia is expected to remain flat for the next two years, after which time the value of activity is expected to increase from $345.6 million in 2012/13 to $406.3 million in 2014/15.
• Thanks to work on the Royal Hobart Hospital, activity in Tasmania is expected to hit $74.7 million during the next financial year – up more than threefold on the $21.9 million recorded in 2009/10.