As the impact of the mining boom continues to flow through to strong demand for commercial property, the long-term outlook for rents, capital growth and construction activity in Brisbane continues to strengthen – as does that for engineering construction.
Following a horrific few months late last year, the state’s residential construction sector appears to have picked up, though activity remains subdued levels compared to historic standards.
Below is an analysis of current market conditions in residential construction, commercial property and non-residential construction, engineering construction, construction sector employment and construction costs throughout the state’s construction industry.
Following a shocking period late last year, Queensland’s housing sector finally seems to be back on the rise, albeit with activity remaining at low levels by historic standards.
In a sign that the pace at which new work is coming in has picked up, the seasonally adjusted number of stand-alone houses approved for construction has now risen in four consecutive months. Furthermore, at 4,776, the number of stand-alone houses approved in the three months to February (seasonally adjusted) was up by almost one-fifth over the figure for the previous three months to November of last year (4,040).
In terms of multi-residential apartments, the immediate future is not quite as promising. At 3,983, the seasonally adjusted number of multi-residential units approved for construction in the six months to February was well down on the that for the six months immediately prior to that (5,183).
Nontheless, partly due to a lack of supply, and also because of an anticipated influx of demand from white collar workers as mining firms open up offices in Brisbane, some developers are optimistic over the prospect of good returns in the market.
Meanwhile, the market for renovations remains flat, with the seasonally adjusted value dollar value of additions, alterations and refurbishments approved during the past six months ($646.7 million) down slightly from the dollar value six months before that ($658.2 million).
Given the stronger numbers coming through for stand-alone housing, Housing Industry Association (HIA) expects a modest pick-up in activity during the next few quarters. While the end of the state government’s home owner bonus scheme on April 30 will not help, the impact of this will be offset to some extent by the reinstatement of stamp duty concessions for homeowners.
In the longer term, however, the HIA expects housing activity in 2012 to remain at subdued levels, albeit with a slightly modest improvement on last year.
With mining now accounting for around 55 per cent of office leasing deals struck last year according to Jones Lang LaSalle (up from 13 per cent in 2008), the commercial property market in Brisbane is reaping its share of the benefits of the mining boom.
Primarily because of this, office vacancy rates in the Brisbane CBD have fallen from their post-global financial crisis highs of around 12 per cent to around 6.2 per cent now.
Going forward, ongoing resources strength (see ‘Engineering Construction’) is expected to continue to underpin strong demand over the next two to three years, with industry research firm CBRE Australia expecting vacancies to fall below six per cent in 2014 and remain there for a considerable period.
In the short term, however, CBRE expects vacancies to edge up as completions of the One One One Eagle Street project and another at 145 Ann Street add to supply.
Outside of offices, participants in the most recent Property Council of Australia Property Confidence survey have a positive short-term outlook with regard to capital growth expectations for retirement living accommodation and a reasonably positive outlook for industrial property. This is not the case for shopping centres and tourism, where survey participants have expressed pessimism.
In terms of construction activity, the pace at which new work is coming in has slowed. At $2.535 billion (seasonally adjusted), the overall dollar value of commercial and other non-residential buildings approved for construction throughout the state in the six months to February was considerably lower than the $4.343 billion approved in the previous six months to August.
Again, however, confidence seems to be on the rise, with participants in the Property Council survey expressing confidence in their own forward work schedules and saying that construction activity is in on the rise in the office, industrial and retirement living sectors while being stalled in retail and declining in tourism.
Not surprisingly, given the strength of the resources sector, current levels of engineering construction activity are extremely strong. Thanks largely to work on projects such as the Australia Pacific LNG project, the total value of work done on engineering construction projects throughout Queensland came in at $8.58 billion (seasonally adjusted) during the December quarter – up 62.1 per cent on the same quarter twelve months earlier.
Better still, even outside of mining, activity seems to be reasonably strong. Disregarding the contribution from heavy industry (which has gone from just over $20 billion to more than $50 billion – not seasonally adjusted – in just twelve months), the total value of work done across all other sectors was up 16.2 per cent in the December quarter when compared to the same quarter 12 months ago, though some of this was due to spinoff work from mining projects.
Going forward, industry research firm BIS Shrapnel expects activity to grow by around 40 to 45 per cent again in 2011/12 as new resource projects crank up, and to continue to grow through to 2014/15, after which BIS expects activity to drop back.
Not surprisingly, given the disparity between the state of Queensland’s building sector – especially in residential – and the civil construction sector, a significant disparity exists in the state’s labour market among different sectors.
In the residential sector, the persistent weak state of the market means labour market conditions in this sector are more favourable to employers than workers at this time. This is borne out in the most recent HIA Trades Report (December quarter) which showed a significant oversupply in labour across a broad variety of trades relating to housing in both Brisbane and Regional Queensland.
More encouragingly for those in the building trade however, the number of participants in the Property Council of Australia’s latest Property Confidence survey who expect staffing levels at their firms to increase over the next twelve months (40.9 per cent of the total) far outnumbered the 14.2 per cent expecting staffing levels to fall. These figures appear to indicate that even in building, demand for staff is expected to pick up.
Conversely, in engineering, competition for talent is intense. This means good opportunities should arise for workers but will place upward pressure on labour costs. By the end of this year, industry funded group Construction Skills Queensland says, projects in areas such as mining, natural gas and transport will require an extra 25,000 skilled workers.
In terms of construction costs, the majority of the aforementioned respondents (52.7 per cent) to the Property Council survey expect costs to rise over the next 12 months, though most of these expect any such increases to be limited to less than five per cent.