Expect Growth in Construction over the coming years
Against a backdrop of rising construction costs, global uncertainty and stuttering supply chains, the Australian construction industry is still expecting growth. It’s not tiny, incremental growth that’s forecast either, ResearchandMarkets.com anticipate 4.7% growth in 2022 with more of the same over the following four years.
Initial forecasts were 3% lower in late 2021, but with the industry expanding by 2.2% in real terms, the research firm had no option but to increase estimations for market growth. The upward revision of expected growth is largely down to better-than-expected improvements in the Victorian construction industry.
CAPTION: The construction industry is primed for growth through multi-residential and infrastructure projects leading the way (Photo by Isaac Smith on Unsplash)
The rising value of Australian construction
The total value of construction work across Australia rose cumulatively by 1.5% year-on-year for the first three quarters of 2021. The total value of buildings approved across the country rose by nearly a quarter (24.5%) and residential and non-residential building permits supported this growth. Thanks to the continued rising value of Australian construction, annual average growth is anticipated to reach around 3% each year between 2023 and 2026.
Investment in infrastructure work also plays a role in the industry’s growth. $15.2billion is to be invested by the Australian government across a number of infrastructure projects in the coming 10 years. The additional investment brings total infrastructure investment to $110billion for the coming decade – a sizeable chunk that will support the country’s economic recovery and create jobs in the sector.
The value of construction industry growth
The investment and subsequent growth of the sector are expected to equate to $256.6billion in 2022/23 alone, according to ACIF forecasts. By the end of this year, nearly 1.2 million people will be employed in construction roles with residential and engineering subsectors leading the way.
Single home ownership is not the main driver of this value. As stimulus measures ease and interest rate hikes soften demand, multi-unit residential construction becomes more attractive to both investors and people wishing to own their own homes.
A surge in engineering construction is also predicted as clean energy and transportation projects get approved and cleared for commencement.
Meanwhile, commercial and non-residential construction will continue to decline. The fiscal value of commercial, public and non-residential buildings has been forecast to fall by as much as 9.8% over the coming 12 months. The reasons behind this shrinkage continue to be COVID-related. Ongoing uncertainty in the retail, recreation and entertainment sectors is giving investors cause to pause construction projects while they wait to see what the future will bring.
Risks and challenges lie ahead
This story of growth doesn’t come without caveats and challenges. Materials and labour shortages that have plagued the industry over the past few years will continue to present challenges for construction businesses. Coupled with rising costs and interest rates, this is bound to soften demand at least a little for new projects as businesses batten down their hatches for impending economic uncertainty commentators keep pointing to.
The projects that do go ahead will likely experience pressure on profit margins and their ability to meet inflexible construction milestones and completion dates. However, these challenges are likely to be bumps in the road toward growth rather than major roadblocks.
“The record low levels of unemployment supports the upgrade to the outlook for building and construction activity in 2021-22 and into 2022-23,” said Kerry Barwise, ACIF Chief Forecaster and Managing Director of FTI Consulting.
“We are forecasting economic resilience with reasonable growth in construction activity,” he went on to say.
Despite inflation pressures and supply challenges, there are reasons for construction industry businesses to look to the future with hope and positivity.