With a record number of major projects in the pipeline, prospects continue to look bright for the South Australian construction industry.
According to the South Australian Major Developments Directory 2010/11, released by the state government in November, the value of major projects which have commenced, been approved or are under consideration stands at more than $80 billion. This is well up from the previous year ($71.5 billion) and almost double the $44.8 billion of projects which were in the pipeline in 2007.
Given that, along with a reasonable longer term outlook in the residential sector, the construction industry in South Australia appears to be in good shape.
Solid at the moment
Overall levels of current building activity remain strong. According to the Australian Bureau of Statistics (ABS), the total value of all work done in the September quarter came in at $1.4125 billion (see chart). This represents virtually no change from the June quarter ($1.4129 billion), but is 17.3% up on the corresponding figure in September 2009.
These strong results have largely been driven by non-residential building. Underpinned by the effects of the National Building Economic Stimulus Plan, the value of non-residential construction in the September quarter came in at $678.6 million – up 37.2% on the corresponding figure in 2009 ($494.4 million), although slightly less than the June peak of $699.6 million.
These figures follow the national trend. Nationally, non-residential construction activity was up 27.2% when compared with September 2009.
As with other states, education has been the driving force. The total value of construction work done on educational facilities during the September quarter ($286.1 million) was up a whopping 344% on the June quarter of 2009 ($64.4 million) – the last quarter before the effect of the stimulus kicked in. The national figure, by comparison, is up 280.3% on the same period.
Other non-residential sectors have not performed so well. At $33.6 million, the value of retail construction in the September quarter was just over half that of a year earlier ($63.9 million). Activity in commercial office buildings ($45.1 billion) was up slightly on June, but has been quiet in 2010 when compared to 2009.
In the residential sector, housing has performed reasonably well. The value of residential building work done amounted to $734.2 million in the September quarter – up slightly on June ($713.2 million) and also slightly higher than the September quarter figure for 2009 ($721.7 million).
Levels of engineering construction have dropped back, however, after an exceptionally strong period in 2009-10 resulting from work on the $1.824 billion desalination plant in Adelaide. At $925.3 million, the value of work done in the September quarter was at its lowest level since the March quarter of 2009. After having previously been buoyed by work on the desalination plant, activity on water related infrastructure ($119.1 million) dropped to almost a third of the level in June ($332 million). In transport, too, work on bridges, railways and infrastructure ($77.8 million) was at its lowest level since June 2009, and work on roads and highways ($210.9 million) was at its lowest level since September 2009.
The immediate future in this sector does not look promising. At $1.469 billion, the value of work yet to be done in this sector is at its lowest level since June 2008. Not surprisingly, the value of work yet to be done in water related infrastructure projects ($481.5 million) is less than half of the figure in September 2009 ($1,262.8 million). That relating to roads, bridges and railways ($94.8 million) is at its lowest point since September 2008.
Strong indicators going forward
Going forward, the outlook looks positive, as major projects drive growth in non-residential construction even as the effect of federal stimulus efforts subside.
As mentioned above, the value of major projects in the pipeline ($80 billion) is more than 10% up on a year ago and almost double the figure in 2007. With projects such as BHP Billiton’s Olympic Dam expansion (estimated by Morgan Stanley to be worth $20 billion) and Altona Energy’s $3.5 billion Coal to Liquids plant north of Cooper Pedy, the mining sector continues to prosper. Construction in defence related work is not fairing badly either, courtesy of projects such as the $8 billion Air Warfare Destroyer contract.
The immediate term also looks promising. Driven by a surge in approvals for offices ($128 billion) and factories ($68.3 billion), non-residential building figures in November ($298.4 billion) were far higher than at any other time in 2010. Builder sentiment remains cautiously positive. Almost 60% of builders see their own activity increasing during the first half of 2011, according to the December Quarter 2010 Survey of Building and Construction released by the Master Builders Association South Australia.
In the residential sector, forward indicators are mixed. In the near term, dwelling approvals ($173.7 million in December) are well down on mid-year and have been low for the past three months. But the longer term picture looks better. BIS Shrapnel predicts that dwelling approvals will grow by a healthy 8% in 2011/12 (consistent with growth at the national level) as demand bottoms out and activity picks up toward the middle of 2011.