Australia: Corrs High Vis: Episode 3 – Construction market forecast: 2017 and beyond

Construction activity and spend are forecast to contract over 2016-17. So where do the areas of growth lie? In this episode of Corrs High Vis, Partner Ben Davidson and Lawyer David Hastie consider the emerging trends over the next twelve months and beyond.

Corrs High Vis tackles the issues that matter in the construction industry. The podcast series, brought to you by Corrs' Construction team, offers views and analysis providing industry professionals with key insights to help them make smarter decisions.

These podcasts do not provide legal or other advice. Obtain legal or other professional advice as required.

TEXT VERSION

CORRS HIGH VIS PODCAST - EPISODE 3 - CONSTRUCTION MARKET FORECAST: 2017 AND BEYOND

Ben Davidson: Corrs Chambers Westgarth – National Practice Group Managing Partner

David Hastie: Lawyer

BEN: Hello and welcome to the third episode of Corrs High Vis – Corrs Construction's new podcast series. My name is Ben Davidson and I am Corrs' National Practice Group Leader and I am joined by lawyer David Hastie. Today we will be taking a look towards the trends that are coming and the issues that we forecast for the Australian construction market. First we are going to have a look back at the emerging trends from 2015-16 financial year then we are going to move to considering some of the issues affecting the industry going forward and finally we are going to have a look at the key considerations that will impact engineering construction in Australia in the short and the medium term. So David welcome.

DAVID: Thanks Ben.

BEN: So I understand you have been reviewing the Australian Construction Industry Forums recently released Australian Construction Market Report.

DAVID: Yes I have so the ACIF released their market forecast in November and quite an interesting read.

BEN: So let's start with a summary. How has the industry performed in 2015-16?

DAVID: Yes, well, I think it has performed well in terms of building and construction activity. It's measured in terms of the value of the work done and the three sectors in particular are residential building, non-residential building and engineering construction and the three totalled and they amounted to about $220 billion worth of activity in the financial year of 2015-16. Just breaking those down engineering construction we saw about $95 billion last financial year in activity. Residential building actually did well and it rose to about $90 billion nationally last financial year. Non-residential building it was hovering at around $35 billion so that's currently where it's at.

BEN: So they're big numbers. Are we likely to see an increase or a decrease in industry activity in the short term?

DAVID: Yes, Ben, well I don't think it comes as any great surprise to our listeners that the report is forecasting a decline of about 6% across the board. So we're looking at a fall from about $220 billion in activity last financial year to numbers in the realms of around $207 billion in 2016-17. I guess there has been somewhat of an economic transition and what we're seeing is residential building across the country but obviously in particular in the capital cities of Sydney and Melbourne, there has been an increase in residential building activity so it was at $90 billion - it's actually going to – it's forecast to increase by about 4% to $94 billion next financial year and obviously that's riding on the back of all the construction work we're seeing in apartment buildings and townhouses and that's acting as somewhat of a stop-gap. Obviously there is no more resources boom so something is having to pick up the slack and what we're seeing in the short term is that is residential building.

BEN: And were there any other issues we should be mindful of in a declining market that will impact either positively or negatively on the market year ahead?

DAVID: Yes well I think a really big issue for us in the legal market that we need to be particularly aware of is that with a decline of about 6% in activity forecast over the next 12 months, with that is going to come a decline in employment in the industry as a whole nationally. May be not so much in markets such as Victoria and New South Wales but there is definitely going to be a decline and there is going to be quite a bit of pressure I think financially put on big players just players in general in the industry so it's something that we really need to be aware of.

BEN: So we just heard that there is an overall fall in activity nationally around 6%. Talk to us about what you think is going to happen in the engineering construction sector.

DAVID: Yes well engineering construction, obviously as I've just mentioned, it's an important one. And given the fact that quite recently we experienced the once in a generation resources boom, naturally we have to come down off those highs and that's still playing out. So I mentioned earlier in the podcast that activity was at around $95 billion last financial year, now that was done 15% on the year prior and it's been a cumulative reduction of around 30% over the last two years to 2015-16 and essentially to answer your question, Ben, what we're looking at is a further 20% reduction projected over the next two years to 2017-18 so there is a still a fair bit of bottoming out to happen and the ACIF report actually forecasts that bottoming out at around $75 billion in 2017-18.

BEN: So there is a bit of red ink in there. Is there any -

DAVID: There is a little bit of red ink in there so I mean again I don't think it really is going to come as any great surprise to those listening but when you see it in hard copy under your nose in a report such as this it really does make you sort of sit up and take notice.

BEN: So are there any specific areas of decline that you think are more troubling than others?

DAVID: Yes well the report identifies electricity and pipeline work. Significant declines there. And again, no surprise, heavy industrial there are declines forecasts and heavy industrial obviously includes mining. There's other areas such as water and sewerage they're actually relatively steady in terms of the short to medium forecast so I think for the players in the water and sewerage areas less to worry about as opposed to may be electricity and pipeline work and when we're talking about pipeline work we're thinking of those huge projects that we've seen in Queensland for example.

BEN: So David there are a lot of areas of decline you've been pointing to here and areas for concern for the market. Are there any areas of specific optimism that you can point to?

DAVID: Yes well in times like this you do really need to look to the positives, don't you? Areas of projected growth: it's definitely roads and there is, for sure, there is an air of conservative optimism there when you read the report in depth. You know the government budget increases obviously are going to be funding this. We're looking at about $68 billion worth in government coffers nationally and that's money that we're currently seeing being spent in NSW - that spending has already begun. The ACIF's – it's forecasting the spread of the remainder of this planned and funded roads construction work over the next several years and it's going to be peaking at around $20 billion in terms of activity by 2019-20 and that represents a 10% lift in activity over the next four years. So when you look at it in those terms there is definitely an air of conservative optimism.

BEN: So beyond roads, what else have you seen that has some air of optimism about it?

DAVID: Yes, look, telecommunications, I think, is an area of growth. Not huge growth but steady growth in the short to medium term. Obviously we're seeing an increased spend as a result of the rollout of the NBN nationally but the other one we can't forget about is the rollout of the 5G mobile network and that's going to be taking place in probably the shorter to medium term, I guess, over the next, maybe, four to five years we're going to be seeing that spend coming into effect. Other areas too include bridges, railways and harbours. There's going to be money to be spent there, especially in Victoria. And this sort of activity will definitely be propping up engineering construction, definitely in Victoria but especially in the short to medium term which is important given the winding back of the spend in residential building.

BEN: And what about rail? So we've seen all of the Melbourne and Sydney Metro projects up and running and talk about Brisbane Metro. Do you think there's some air of optimism there or do you think the market's kind of burnt through there?

DAVID: I think you've just summed it up quite nicely yourself there, Ben. There's definitely – obviously we're seeing for example in Victoria the removal of the level crossings. That sort of work is happening and obviously we've got the Metro project which is still to happen and there's going to be considerable spend when that takes effect. I don't know, Ben. What's your take on the rail spend because obviously there is money there to be spent and we're seeing, for example, in Victoria – not to mention New South Wales but definitely in Victoria – money is being committed and it's definitely a good thing and it's extremely important.

BEN: Yes, I think interestingly what we are seeing is a series of rail projects, particularly up the east coast, that are very significant and are likely to actually stretch the market. So each of the States, with Brisbane to come, have committed to very significant projects and they're all basically happening at the same time. So it will be interesting to see how the market juggles that and allocates resources to make sure that there's not an LNG type stretch on.

DAVID: Now, I guess you – you've been hogging all the questions, Ben, so it's my turn to fire a question at you: what I'm interested to hear about is the forecast for engineering construction activity offshore. And I suppose a focus definitely would be Asia and South-East Asia. Ben, would you be able to give us some sort of a flavour or a taste of the work that is in the pipeline there and how that translates to us here in Australia and the nature of the work that will be performed in probably more the medium term, I'm guessing?

BEN: Yes, it's interesting. It's an interesting space because putting it into perspective, we saw just under a $200 billion committed on the Australian domestic LNG market over the last couple of years as the major LNG plants were constructed. That clearly stretched the market in terms of its ability to service all of those at the same time. In terms of international, and putting that into perspective, the current estimates are we are going to see something in the order of US$7 trillion deployed through South-East Asia in terms of major infrastructure spend over the next 7 to 10 years. So even amortising that on a straight line, it is such a significant amount of expenditure, there is no doubt that there is going to be a significant stretch for international and Australian domestic contractors to meet that market and service it over the next – even the short term, but certainly into the mid-term. It will be interesting to see how that is deployed and what mechanisms are used to try and do that, whether it is PPP models or something else. But in either event, whatever model is deployed, someone has to build these things. And it seems similar to the LNG story that you're going to end up with several countries competing for resources as they try and deploy the same level of infrastructure at the same time. So you'll see a number of countries try and deploy major roads and rail infrastructure at the same time and similarly to do ports and airports and the like. So it will be interesting to watch whether the Australian contracting market looks up to Asia as an escape route from a declining market.

DAVID: Yes, definitely. Those numbers make your eyes water when you talk about the spend that we're potentially looking at in South-East Asia. It's, I guess, watch this space Ben. So Ben, before we finish, I guess the key takeaways that we should really note is that firstly industry nationally is in a state of economic realignment. Secondly, residential building can't prop up the industry forever. It is going to wind up and it's going to wind up soon. But we can enjoy the fruits of that while it does last. Thirdly, the end of the decline in engineering construction is close. There are areas like roads, like we've talked about, for example, or telecommunications: there is definitely work there to be done here in Australia. And finally the industry is facing its own challenges, especially us in the legal world need to be aware of and we need to be aware of these sensitivities.

BEN: I agree entirely, David. Thank you for your time today. It's been fantastic to chat to you.

DAVID: Thanks Ben.

BEN: So my name's Ben Davidson. Thank you for listening. I'm looking forward to you joining us for the next edition of Corrs High Vis. Til next time.

This podcast does not give legal or other professional advice and its contents should not be relied upon as such. Formal legal and other professional advice should be sought in particular matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions