With the imminent start to construction of the Royal Adelaide Hospital, activity within the South Australian construction sector is likely to hold up reasonably well despite a slowdown in public sector projects.
According to the latest forecast from construction industry services provider BCI Australia, the overall value of construction starts in the state is set to surge in the month of June to almost $2 billion – nearly double previous peaks of $1.012 billion last May and $1.033 billion in February (see chart).
Underpinning these expectations is an anticipated $1.097 billion in starts in the ‘community’ sector (healthcare and recreation) as well as an expected $708 million in civil construction.
Over the year to June, BCI expects overall starts to exceed the twelve month long term average by 39%.
Taking a breather
Buoyed by the Nation Building Economic Stimulus Plan, the state continued to experience strong conditions in 2010. According to the Australian Bureau of Statistics (ABS), the value of all construction work done throughout 2010 amounted to $9.862 billion, 9.4% above the previous corresponding figure in 2009 ($9.012 billion) and 25.19% higher than the total amount of work done in 2008 ($7.378 billion).
With the effect of the stimulus beginning to fade, there have been signs of slower activity in recent months. Non residential building approvals were lower in both January and February than at any time during 2010. Overall building approvals over the December-February period ($996.7 million) were down by 24.85% when compared with the same period for the previous year.
In the short term, however, the expected surge in starts should help maintain activity at respectable levels.
Longer term, the outlook is encouraging. As at last November, the total value of projects either in progress or under consideration had reached $80 billion, according to the South Australian Major Developments Directory 2010/11 published by the South Australian Department of Trade and Economic Development. This was up from $47 billion in 2007.
Much, however, hinges on decisions about BHP’s proposed Olympic Dam Expansion project. The expansion, which is currently in the feasibility stage and was estimated by Morgan Stanley last year to be worth around $20 billion, accounts for roughly a quarter of the projects referred to above. Decisions regarding approvals are expected in the second half of the year.
Sector by sector
Not surprisingly, work on the hospital is expected to drive strong activity in healthcare going forward.
Already, conditions in the sector are strong. According to the ABS, the value of activity has more than doubled from $92.8 million in the year to September 2009 to $186.3 million in the twelve months to September 2010. This largely reflects work on a new $200 million health and medical research facility next to the site of the hospital.
In spite of labor shortages and uncertainty about the resources tax and carbon tax, the long term outlook for mining is strong, especially if work on Olympic Dam goes ahead. Around half of the $80 billion in work under consideration above relates to mining and resource projects.
Activity in 2010 was flat. The total value of work done in the sector last year ($532.6 million) remained virtually unchanged from $527.2 million in 2009.
Conditions remain flat in the residential sector. At $2.792 billion, the value of construction work done in the twelve months to September 2010 was virtually unchanged from the previous corresponding figure in the year to September 2009 ($2.790 billion).
Things look no better going forward. BCI forecasts that starts in the year to June will be 16% below their twelve month long term trend. Approval data from the ABS indicates that the value of approvals in the three months to February ($466.1 million) was 5.86% lower than the corresponding figure one year earlier ($493.4 million).
The commercial sector finally received some good news last November with the approval of Gunn Group of Companies’ proposed $80 million hotel at Victoria Harbor. Activity in the sector has been slack. In the year to September 2010, the total value of work done on office construction came to just $173.3 million, according to the Australian Bureau of Statistics – down by 29.06% when compared to the $244.3 million worth of work done in the year to September 2009. Thanks largely to the new hotel, however, BCI expects that the value of construction starts in the year to June will be 31% above their long term average.
Retail is in a shocking state. At $163 million, the value of work done in this sector in the year to September 2010 was just over half the corresponding figure a year earlier ($313 million). Despite BCI’s expectation of a modest surge in starts in June ($60 million), the overall value of starts in the year to June will still be 10% below long term average, the forecaster says.
Industrial is in reasonable shape, with the value of work done in the sector in the year to September 2009 was up a respectable 9.17% when compared with the previous year. BCI expects starts in the year to June to be up 13% on long term trend.
Consistent with national trends, activity in the public sector is subsiding as the effect of government stimulus wanes. In education, BCI expects starts in the year to June will be down on their twelve month long term average by 20%. Approvals are down also. Excluding work on healthcare and recreational facilities (considered in other categories), the total value of approvals for public sector buildings in the six months to February (125.1 million) was 19.24% lower than the $154.9 million in the previous six months to August. Outside of education, the only significant dollar value project to commence recently in this sector was the defence department’s $100 redevelopment of RAAF Base Edinburgh.
Transport is in good shape. At $1.40 billion, the total value of work done in the sector in 2010 was 20.72% higher than 2009. Better yet, courtesy of the Southern Expressway Duplication project, the value of work yet to be done as at December 31 last year stands at $793.5 million, according to the ABS. This is far higher than at any time in recent years and more than two and a half times the level recorded at December 31 in 2009 ($295.9 million).
Aside from the expressway duplication, other major projects on the radar include the government’s rail revitalisation program, the $812 million South Road Superhighway, the Seaford rail line and Centrex Metal’s proposed deepwater port near Sheep Hill.
Activity dropped off in water last year as work on the desalination plant wound down. At $828.6 million, the value of work done in the sector was down by 40.49% on the previous year. With the only significant project on the horizon being a proposed wind-powered desalination plant at Port Pirie, output is unlikely to recover anytime soon.
Activity in the sport and landscape sectors was strong throughout 2010. The value of work done on ‘entertainment and recreation’ facilities during the year increased by 40.72% when compared with 2009 to $237 million. Also the value of engineering work on ‘recreation and other’ facilities rose by 28.29% to $319.7 million. It is not possible to tell exactly what portion of these figures relates to each sector.
Going forward, plans for a further $550 million redevelopment of the Adelaide Oval and also a major redevelopment Riverbank precinct point to a bright future for both sectors.