Conditions activity in the Western Australian is set to improve over the next two years as an anticipated surge in building starts in 2011/12 flows through into stronger building activity in 2012/13.
In its latest forecast on building activity, industry research firm BIS Shrapnel predicted a 28 per cent increase in building starts for the state in 2011/12. Almost all of the increase will come from non-residential building, especially in the healthcare, commercial and industrial sectors.
The increase in starts, however, will not flow though into activity gains until 2012/13. In that year, the Construction Forecasting Council (CFC) expects activity to surge almost 20 per cent from $37.588 billion to $43.489 billion. Beyond that, the CFC expects activity to peak at $54.874 billion in 2013/14 as significant mining projects such as the Scaddan Energy Joint Venture Coal Project ($21 billion) get underway.
Near term, conditions are expected to ease back after a strong year. In financial year 2010/11, the value of work done in the state increased by 8.61 per cent to come in at $38.858 billion. As work winds down on government stimulus projects, however, the CFC expects activity to ease back to $37.588 billion this year.
Building approval data supports this. The total value of buildings approved in the first six months of this year ($4.205 billion) was well down on that for the previous corresponding period last year ($5.183 billion). Moreover, at $8.810 billion, the value of buildings approved in the twelve months to June was well short of value of building work done during the same period ($11.980 billion), meaning that new work is not coming in as fast as existing work is being done.
Mining to lead the way
Though commercial and health are expected to lead the increase in starts, the mining sector will be the primary driver of growth going forward.
According to CFC forecasts, in the year to March 2012 (see note below):
• Activity in mining will edge up from $16.676 billion to $17.145 billion before taking off in later years, reaching $23.362 billion in 2012/13 and $33.618 billion in 2013/14. Along with Scaddan Energy, projects such as stage six of BHP’s Rapid Growth Iron Ore Project ($6.500 billion) and the West Pilbara Iron Ore Project ($5.770 billion) will be the key drivers of activity.
• Homebuilding activity is expected to grow by 7.9 per cent to $5.480 billion and grow steadily thereon after, with the value of work reaching $6.757 billion in 2014/15.
• The value of work in multi-residential construction will drop back 22 per cent to $1.113 billion. Activity in this sector will take off around 2013, however, reaching $2.489 billion by 2014/15.
• After subdued conditions this year, with activity expected to drop back 7.5% to $809.2 million, an anticipated pickup in starts this year will support substantial growth in office building in 2012/13 as projects like the redevelopment of St. Georges Cathedral Heritage Precinct add to momentum. In that year, the value of work is expected to increase by more than 30 per cent to reach $1.054 billion.
Outside of office building, the broader commercial sector will receive a significant boost if Ermes Technologies’ $4 billion theme park goes ahead (the preferred location could be decided as soon as September).
• Despite an expected strong increase in starts of health and aged care facilities in 2010/2011, mostly underpinned by the anticipated start on construction on the Princes Margaret Hospital For Children ($1 billion) (May 2012), the value of work on healthcare facilities is expected to drop from $658.7 million to $359.8 million on the way to bottoming out at $346.6 million in 2012/13. Activity in this sector has been unusually strong in recent years due to work on the Fiona Stanley Hospital.
• As work on Building Education Revolution projects (BER) winds down, construction activity on education facilities is expected to drop back from $1.349 billion to $721.6 million on the way to bottoming out at $497.4 million in 2012/13.
• Despite an anticipated boost from work on the West Pilbara Seawater Desalination Plant ($900 million) early next year, the value of work done on water and sewerage projects will decline following completion of the Southern Seawater Desalination Plant from $1.439 billion to $841 million on the way to bottoming out at $761.3 million in 2012/13.
• Thanks to work on NBN projects, activity on telecommunications infrastructure is expected to surge by almost 50 per cent from $308.1 million to $456 million before growth moderates in subsequent years.
• Though subdued activity is expected for the sport and landscape sector, long term prospects for this sector received a significant boost with the recent announcement of a new sports stadium in Perth ($1 billion).