With office vacancies on the rise, it appeared until recently that prospects for builders, developers, landlords, investors and skilled construction labour in the Northern Territory were not good.
On January 13, however, the development landscape changed. On that date, as reported in January, Japanese energy giant INPEX Corporation gave final approval for its Ichthys offshore LNG Project – one of the largest and most advanced LNG projects in the world.
According to the Property Council of Australia’s latest Property Confidence Survey, the impact of the Ichthys project will extend well beyond mining, and will affect capital values, rents, construction activity and construction costs across the board. At 145, the territory’s overall Confidence Index reading in the survey ranked well above other regions in Australia, with the next highest – Western Australia – coming in at 127.
Having gone through challenging times throughout most of 2011, the territory now has the hottest residential market throughout the country.
In its latest forecast, Housing Industry Association estimates the seasonally adjusted number of construction starts on stand-alone houses and apartments throughout the territory rose from 180 in the September quarter last year to 260 in the December quarter. In the current quarter, the association expects starts to rise again to 300. This means new work is coming in much faster than it was six months ago.
This is further reinforced by the Confidence Survey, where 42.9 per cent of respondents described residential construction levels in the territory as rising – higher than for any other state in Australia. A whopping 45.1 per cent of respondents – far more than double anywhere else in the country – expect housing values to rise in the next 12 months.
Commercial Property/Non-residential building
At first glance, the Property Council’s latest Office Markets Report would appear to paint a grim picture for rents, investment returns and construction prospects in non-residential building. That report showed that in the six months to January, a net of 3,882 square meters of new office space had come onto the market in the Darwin CBD and that office vacancy rates had risen from 7.9 per cent to 9.1 per cent.
Normally, that would indicate a situation of oversupply. As the boom from Ichthys spreads across the economy, however, respondents to the Property Council’s survey expect rents, capital growth and yields on investment in offices throughout the NT to outstrip those in all other states except Western Australia.
That boom is spreading beyond offices. A whopping 49 per cent of survey respondents expect capital values in industrial property to increase during the next quarter while a further 46 per cent expect no change. The former figure is far higher than for anywhere else in the country. Construction activity in the territory’s industrial sector will receive a boost from work on Australian Agricultural Company’s new $80 million abattoir in Darwin.
In retail, too, a respectable 17.8 per cent of respondents expect shopping centre values to rise – more than anywhere else in the country – while only 13.3 per cent expect values to fall.
Apart from construction on public sector facilities such as schools and hospitals, the two areas of commercial property which remain unaffected by INPEX are tourism and retirement living. In tourism, survey respondents expecting capital values to fall (31.3 per cent) far outnumber those expecting values to rise (18.8 per cent). In retirement accommodation, the number of respondents expecting values to rise in the coming quarter (22.7 per cent) far outweighs those expecting values to fall (4.9 per cent), though the proportion of respondents expecting a rise in values is less than the national average of 36.6 per cent.
Thanks to Ichthys, the outlook for resource construction activity throughout the Northern Territory is extremely strong.
Another main area of activity is telecommunications, as work on the National Broadband Network continues following the opening of the Darwin Fibre Optic Link from Darwin to Toowoomba. Earlier this month, NBN Co, the company charged with delivering NBN infrastructure, awarded a $620 million contract to US firm Space Systems/Loral for two satellites to serve remote areas.
While the anticipated boom in employment from Ichthys and other projects will deliver significant benefits to workers, it will also place enormous pressure on wage and construction costs.
Across the entire territory, the total number of people employed full-time in the construction industry in the three months to November came in at just 11,900, according to ABS estimates. By itself, the Ichthys project will require 3,000 workers at peak construction.
Not surprisingly then, in the Property Council’s survey, the 12 Month Ahead Staffing Level Expectations Index came in at plus 35 – whereas no other state in Australia recorded a level higher than 25. Also not surprisingly, in that same survey, the 12 Month Construction Cost Expectations Index came in at more than 80. By comparison, no other state or territory recorded a level above 40.