The housing market may be soft at the moment and there may be talk of an end to the mining boom, but with strong civil construction activity, the tightest office market in the country and expectations of a home building recovery, the overall picture in Western Australia’s property construction industry is one of buoyant anticipation and activity.
Indeed, 12-month expectations of participants in the September quarter Property Council of Australia-ANZ Property Industry Confidence Survey are higher with regard to Western Australia than for anywhere else in the country except for the Northern Territory and are at least six times as upbeat as they are for the country as a whole.
While this is not great news from the viewpoint of corporate tenants, who face the prospect of higher rents, it is excellent news for property developers, builders, property owners and the sector’s work force.
Below is an outline of current market conditions and near-term prospects in residential construction, commercial property/non-residential building, engineering construction and construction industry employment.
Described by the Housing Industry Association (HIA) as the state which most provides ‘that rather quintessential example of how if you live in Australia but don’t directly benefit from the resources boom, then times are challenging,’ Western Australia’s current residential market conditions are not strong.
At 17,510 (HIA estimate – final ABS figure yet to be confirmed), the number of dwelling units commenced throughout the state in 2011/12 was the lowest level on record for at least the past eight years.
Nor is approval data encouraging for the immediate future. At 3,726, the seasonally adjusted number of dwelling units approved for construction in the three months to June was almost one-third lower than the equivalent number for the March quarter (4,888) and was well down on the 5,025 units approved for construction in the three months to June last year. This means the pace at which new work is coming in has slowed.
Despite this, however, the HIA is reasonably confident about near-term prospects. In 2012/13, the housing group expects starts to increase by 25 per cent to come in at a 21,920 – still low by recent historic standards, but representing a ‘decent’ improvement from the last financial year – before increasing by a further five per cent in 2013/14.
Recent cuts to interest rates will certainly help, as will a lack of housing in Perth and healthy levels of affordability.
Outside of new housing, the market for renovations has eased back after hitting record levels in 2010/11, with the HIA expecting the total level of renovations investment throughout the state to come in at $4.4 billion in 2011/12 – down 8.9 per cent but still more than respectable by recent historic standards.
Better still, the housing group expects healthy growth of 4.2 per cent and 3.3 per cent in the current financial year and next financial year respectively, taking the overall value of renovations investment to $4.8 billion by 2013/14.
Commercial Property/Non-residential building
As the effect of the mining boom continues to flow through to demand for office and other commercial space, the outlook for capital values in commercial property in Western Australia is extremely strong.
Over the next 12 months, participants in the Property Council survey expect Western Australia to experience higher levels of capital growth in offices than any other state, as well as the second-highest level of industrial property price growth. It is the only state/territory other than the Northern Territory expected to experience growth in the value of tourism property.
Despite significant increases in stock, a net absorption rate eight times the city’s long term average has kept vacancy rates in Perth (4.2 per cent) at levels far lower than those in any other major city in Australia, according to the Property Council of Australia’s latest Office Market Report.
In terms of non-residential building activity, too, the outlook is reasonably encouraging. At $2.500 billion, the overall value of non-residential buildings approved for construction in the first half of this year (seasonally adjusted) was up on the same figure for the first six months of last year ($2.371 billion), meaning that the pace at which new work is coming in has edged up.
Moreover, forward work schedule expectations of participants in the Property Council’s confidence survey remain buoyant – more so than any other state or territory except for the Northern Territory.
There may be headlines about the end of the mining boom two years from now, but for the moment at least, Western Australia’s civil construction industry is running hot.
Thanks largely to work on Chevron’s Wheatstone project, the seasonally adjusted value of engineering construction work done in the state throughout the March quarter this year ($14.289 billion) was up almost 50 per cent on the previous corresponding quarter one year earlier ($9.579 billion), and has risen more than threefold over the past seven years.
There is no immediate end to this boom in sight. At a whopping $61.547 billion, the value of work yet to be done in the sector as at March 31 (ABS) stands at more than three times the levels seen as recently as December, 2009 ($19.461 billion), meaning that activity in the sector will be extremely strong even if, as some believe, some resource firms do pull back on planned investments.
Longer-term, industry research firm BIS Shrapnel expects momentum to keep going, as a combination of continued strength in mining and heavy industry, a tripling in harbours work, a near tripling in pipeline activity and a strong increase in telecommunications work via the NBN propels a 50 per cent increase in activity over the next five years.
At face value, ABS figures appear to imply that conditions in the construction industry labour market are not strong.
At 119,000, the ABS estimate of the number of people employed full time in construction throughout the state in the three months to May was down by 14 per cent compared to the same time last year and was at its lowest point on record since the winter of 2007.
These figures, however, may be potentially misleading as some workers involved in resource construction may well have been classified in ‘mining’ rather than ‘construction’ – where employment numbers are at their highest level in more than three years.
Furthermore, the latest HIA Trades Availability report indicates that in residential construction at least, a mild shortage of tradespeople exists in Perth despite the weak state of the housing market, while a fairly severe shortage exists throughout Regional WA. Indeed, Perth and WA are the only two of the main regions in Australia to be experiencing such a shortage. This hardly supports the idea of a slack labour market.
Furthermore, thanks to continued strength in resource construction, expectations for the sector’s workforce over the next 12 months remain buoyant. Twelve-month expectations for participants in the Property Council’s survey have slipped in recent quarters but remain stronger than anywhere else in Australia except for the Northern Territory and are more than three times as high as expectations for the country as a whole.