As the state records its busiest quarter in at least three years, the construction industry in South Australia is set to receive an enormous boost in 2011/12, with one forecaster expecting an increase in the value of building starts to the tune of 45 per cent.
And outside of building, civil construction will get an even bigger shot in the arm if BHP Billiton’s proposed Olympic Dam expansion goes ahead.
Nevertheless, overall construction activity in the state is still set to decline as residential conditions continue to deteriorate and work winds down on the Building Education Revolution program (BER).
As with other states, activity is running hot at the moment. Thanks to a surge in civil construction, the total value of work done in South Australia in the June quarter amounted to $2.798 billion – the highest figure for any quarter for at least the past three years.
Furthermore, in its latest building activity forecasts released earlier this month, industry research firm BIS Shrapnel predicted a 45 per cent increase in total building commencements in the state during 2011/12.
Caution, however, should be read into these numbers. Despite the strong showing in the June quarter, the total value of work done in the state during the twelve months to June ($9.844 billion) did not increase at all when compared to the previous twelve months ($9.853 billion). Moreover, almost all of the anticipated increase in starts relates to a singular project (the $1.7 billion Royal Adelaide Hospital) and is therefore once-off in nature. Indeed, BIS expects this year’s upwelling in starts to be followed by a corresponding decrease of 32% in 2012/13.
In the short term, approval data is far from encouraging. In the first six months of the year, the total value of buildings approved in the state ($1.652 billion) was well down on the same period last year ($2.011 billion). Moreover, at $3.740 billion, the overall value of buildings approved in the twelve months to June was well down on current levels of building activity ($5.232 billion in the year to June), meaning that new work is not coming in anywhere near as fast as existing work is being done.
Not surprisingly, then, the Construction Forecasting Council (CFC) is not optimistic. In financial year 2011/12, the CFC expects the value of work done in the state to fall 16.3 per cent to come in at $8.241 billion. Beyond that, however, the forecaster anticipates a substantial recovery, with activity bouncing back to $8.776 billion in 2013/14 and $9.617 billion in 2014/15.
Mining to be the standout performer
Mining is expected to be the strongest performing sector over the next twelve months.
In significant sector developments, according to CFC forecasts:
• Driven by work on the Nolans Bore Whyalla Rare Earth Complex ($1 billion), activity in mining and heavy industry is expected to increase from $618.1 million to $814.1 million in the year to March. Beyond that, as early work associated with Olympic Dam kicks in (subject to environmental approval), the value of work will reach $1.090 billion by financial year 2012/13.
• Burdened by oversupply, residential construction activity will decline from $2.852 billion to $2.475 billion in the year to March before recovering to almost $3 billion ($2.964 billion) by 2013/14.
• The value of work done on education facilities is expected to fall from $986.3 million to $465 million over the twelve months to March next year. By financial year 2013/14, activity will bottom out at $358 million.
• Water construction activity is expected to plummet from $669.7 million to $358.6 million in the twelve months to March next year following last year’s completion of the Adelaide Desalination Plant.
• Buoyed by work on the new hospital, activity in healthcare will rise from $196.1 million to $232.2 million in the year to March. By 2013/14, activity is expected to reach $275.6 million.