Expect non-residential construction to bounce back

By Gerv Tacadena | 19 Sep 2019

Despite the lull in the retail sector, the non-residential property construction is expected to overturn its recent short-term slump and hit record highs in the next years, according to the latest forecast by BIS Oxford Economics.

Non-residential construction is slated to jump modestly by 7% over the 2020 and 2021 financial years. BIS Oxford Economics principal economist Timothy Hibbert said publicly-funded projects will likely drive this expected growth.

"We expect the pick-up in the volume of projects to be quite solid over the next few years and particularly incremental growth from social and institutional buildings, like health, stadium and museum projects, and education holding at a high base," he told The Australian Financial Review.

Also read: Housing Market To Stabilise?

Total building activity, including residential market activity, has declined by 11% in the 2019 financial year to $111bn, following the record-high of $125bn over the past year.

Other commercial and industrial construction segment saw the biggest growth in construction at 19%. This segment includes agriculture and mining-related buildings. On the other hand, aged-care construction witnessed the most significant decline at 26%. Hibbert said the aged-care building activity will remain weak over the next two years.

"Occupancy rates have taken a step down in response to the quite strong growth in supply in the market, and at the same time you have the royal commission into the sector with a report due later in the year, and that's causing a bit of uncertainty among developers," he said.

In the office sector, the 24% drop during the 2019 financial year was due to the timing of the market instead of weakness.

"Office construction took a big step up through financial years 2017 and 2018 driven by NSW and Victoria, and by and large we expect offices to hold at a high base over the coming years, because there's sufficient pressure in the Sydney and Melbourne offices markets to underpin a high level of new projects," Hibbert said.

Also read: Office Market An Investor's Dream?

While retail commencements grew 9% over the past financial year, the future of the sector is more stagnant and weaker compared to other segments.

"It had been a weak year for major retail projects, with the biggest project coming through the Karrinyup shopping centre redevelopment in Perth, which was about $350 million on our numbers. Outside that, it's been pretty sparse," Hibbert said.

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