NT Development Poised For Big Recovery

Darwin CBD

After a horror twelve months, a rebound of spectacular proportions is expected in the Northern Territory construction sector.

Current conditions are awful. Even with a $135 million boost to building on education facilities resulting from stimulus efforts, the overall value of work done plummeted by more than a third last year to come in at just $1.859 billion. At this level, activity is lower than at any other time since the 2002/03 financial year and is just over half the $3.542 billion peak recorded in 2007/08 immediately prior to the global financial crisis (GFC).

Engineering lead the way down. Courtesy of a $1.153 billion plunge in mining, the value of civil construction fell by more than half from $2.059 billion to $927 million. Building activity actually increased by 7.8% to $932.6 million, but take out the effect of the surge in education and building also suffered a decent contraction.

Nonetheless, expectations abound for a sustained strong rebound. The Construction Forecasting Council (CFC) expects activity to bounce back to $3.155 billion this year. By financial year 2012/13, the forecaster reckons, the value of work will have reached $4.386 billion on its way to breaching the $5 billion mark by 2014/15.

Just as engineering is leading the downturn, it will also lead the charge back up. Thanks to a massive rebound in mining (see below), the CFC expects engineering activity to more than double to $2.072 billion this year. By 2012/13, the forecaster believes, work in the civil sector will rise to $3.116 billion.

Other forecasters are just as bullish. In its latest report on the engineering sector, industry research firm BIS Shrapnel says that civil construction activity could reach $4 billion in coming years.

Construction information service provider BCI Australia is also optimistic. In the year to March 2012, BCI predicts that the value of civil construction starts in Queensland and the Northern Territory combined will amount to $6.481 billion, up from $3.875 billion in the year to March 2011.


Residential

The value of work done in the residential sector increased by a respectable 8.94% last year to come in at $486.3 million.

Going forward, the CFC expects activity to contract this year, with the value of work done amounting to $426.3 million. Supporting this downbeat assessment is soft approval data: at $170.3 million, the value of dwelling approvals in the six months to March was well below that recorded in the half year to September last year ($275.9 million).

Nevertheless, with a handful of projects are set to kick off this year, including a $108 million Chinatown Mixed Use development in Darwin and the Nightcliff Garden Estate Units development, the CFC expects a pickup in activity over the longer term. By 2013/14, the forecaster reckons, the value of work will reach $608.3 million. By 2015/16, that number is expected to rise to $727.0 million.


Multi-residential

After a shocking year in 2009, the multi-residential sector bounced back in last year, with the value of work growing by around a third to come in at $170.9 million.

At this level, activity is almost back at its pre-GFC peak ($172.8 million).

Going forward, approval figures are not encouraging. At $92.9 million, the value of approvals in the six months to March was well down when compared to the half year to September last year ($176.6 million). Not surprisingly, then, the CFC expects activity to ease back to $157.3 million this year.

With projects like Chinatown and Nightcliff (see ‘Residential’) scheduled to begin later this year, however, the long term picture is reasonably bright. By 2014/15, activity levels are expected to have reached $240.8 million.


Commercial

Construction activity in the Northern Territory commercial sector plummeted from $107.7 million in 2009 to $37.8 million in 2010 – lower than at any stage in at least the past eight years.

Thanks largely to the Stokes Hill commercial and residential development in Darwin ($50 million), the CFC expects a recovery in 2011, with the value of work reaching $60.96 million. By financial year 2012/13, the forecaster believes, annual activity levels will be as high as $93.18 million.

By contrast, accommodation – some of which relates to the commercial sector -performed strongly in 2010 but does not have an encouraging outlook. At $40.8 million, the value of work done last year was more than double the $15.3 million recorded in 2009. Despite the approval of Quest Arcadia, a 31 storey mixed-use building in Darwin, however, the CFC expects activity to remain flat this year ($42.2 million) before dropping back substantially in 2012 and beyond.


Retail

With work on the $60 million Stuart Highway Shopping Centre in Palmerston about to kick off, prospects for retail look good.

Last year, activity in the sector rose from $29.9 million to $38.5 million.

Helped along by the new centre, the CFC expects the value of work to amount to $49.94 million this year and to reach $80.4 million by 2013/14.


Industrial

Given the expected boost from a $300 development of a marine supply base adjacent to East Arm Wharf to service oil and gas industries in the Timor Sea, Browse Basin and adjacent areas, expectations for growth in the industrial sector are surprisingly modest.

Activity was subdued in 2010, with the value of work declining from $63.8 million to $44.7 million.

Going forward, the CFC expects flat activity in 2011 ($40.6 million). Despite work on the supply base getting underway in March next year, the forecaster expects only modest growth in the value of work done, which it says will increase to $53.92 million by 2013/14.


Public sector

As with other states, the public sector in the Northern Territory experienced a surge in activity last year as a result of government stimulus efforts through the Building Education Revolution (BER).

The value of work done on education facilities amounted to $228.4 million, almost double the $119.3 million in 2009. Indeed, to give a better indication of the BER effect, the value of activity in the year to September last year ($231 million) was almost two and a half times the $93.0 million recorded immediately prior to the stimulus in the year to September 2009.

Not surprisingly, however, activity is set to drop back to normal levels as the stimulus fades. This year, the CFC forecasts activity of $114.4 million, dropping back to $83.9 million by 2012/13.

Outside of education, the sector is set to benefit starting next year from work on the $300 million Darwin Prison Doug Owston Correction Centre, a prison and mental health unit.


Healthcare

At $33.3 million, the value of work done on health and aged care facilities in 2010 remained virtually unchanged from the previous year ($36.5 million).

This year, more of the same is expected, with the CFC expecting activity to come in at $33.2 million.

Perhaps underpinned by the mental health component of the new correction centre (see Public Sector), the forecaster is expecting growth from 2012 onward, with the value of work reaching $43.5 million by 2012/13 and getting to almost $60 million by 2014/15.


Transport

Activity in transport was subdued in 2010, with the overall value of work ($191.6 million) remaining about the same as in 2009 ($188.3 million).

Whilst road construction grew 12.2% to reach $165 million, work on railways, bridges and harbors shrank by just over a third to come in at $26.9 million.

Nevertheless, the outlook going forward is much better. In 2011, the value of work done should more than double to $345.45 million as work on ports, railways and bridges increases more than fourfold to $96.54 million.

By 2012/13, CFC reckons activity will reach almost $500 million ($495.39 million).

Major projects in the pipeline include the road infrastructure component of Weddell City ($700 million), a new city located south of Palmerston which will be the territory’s forth largest, and $50 million worth of port facilities at Darwin. Also, in December, approval was given for the 2010 Masterplan of Darwin International Airport, a twenty-year upgrade plan involving a major redevelopment of the passenger terminal. by 2013.


Water

Water experienced strong conditions last year as the value of work done almost doubled from $39.5 million to $75.6 million.

At this level, activity was just above the typical $65-70 million range experienced throughout most of the past five years.

With little in the way of large dollar value projects on the horizon, the CFC expects activity to ease back to $65.58 million in 2011 and to grow only modestly thereon after, not reaching $70 million until 2014/15.


Mining

With the value of work plummeting 72.9%, last year was a shocker for the heavy industry sector in the Northern Territory.

At $427.7 million, the value of work done in the sector was lower than at any other time during the past decade, and was almost five times lower than the $2.107 billion recorded in 2008/09 immediately prior to the GFC.

Nevertheless, just as the sector’s fall has been astonishing, its rebound is expected to be even more spectacular. In 2011, the CFC expects activity to bounce back $1.592 billion on the way to reaching almost $2.5 billion by 2012/13 ($2.485 billion) and nearly $3 billion ($2.928 billion) by 2014/15.

Much depends on the Ichthys LNG Project, a Joint Venture between INPEX Browse Ltd (76%, the Operator) and Total E&P Australia (24%) which will be the largest ever oil and gas development in the territory. Encouragingly, the project moved one step closer to reality on May 18 with the receipt of environmental approval from the Northern Territory government.


Sport

Activity remains flat in the sport and landscape sectors.

The overall value of building and engineering work on recreation and entertainment facilities – the best available measure of activity for the sport and landscape sectors, grew by a modest 3.74% last year to come in at $122 million.

Apart from the Sport component of the Weddell City project referred to above, there appears to be little in the way of significant dollar value projects to drive activity forward. Accordingly, the outlook is not encouraging. In 2011, activity is expected to drop back to $88.2 million. Subdued levels of activity are anticipated thereon after, with the value of work not expected to reach $100 million again until 2015/16.

Landscape
With the value of work on entertainment and recreation facilities set to decline (refer ‘Sport’) the outlook for the landscape sector is not positive.

As with sport, the only significant project on the horizon is the landscape component of the Wendell City project.

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