After subdued conditions in 2011/12, construction activity in the multi-residential sector in Australia is set to bounce back in 2012/13.
Despite weak conditions in the broader residential market, the multi-res sector has been experiencing strong levels of activity over recent years. In 2010/11, Housing Industry Association (HIA) puts the number of multi-residential dwelling starts at 57,790 – higher than at any other time over the past eight years (see chart below). Also, over the twelve months to March, figures from the Australian Bureau of Statistics (ABS) indicate that the value of work done in the sector grew 20.83% to come in at $13.615 billion.
For the moment however, conditions have turned ugly. The latest Performance of Construction Index report (PCI), published by HIA and Australian Industry Group (AIG) earlier this month, indicated that apartment building activity declined again in July. The apartment building sub-index registered 34.9, a slight improvement on the June figure (33.7) but still a significant contraction in activity (any reading below 50 indicates a decline in activity during the month in question).
Going forward, near term indicators are not encouraging. New orders for apartments, according to the PCI, have been in decline for eighteen months in a row, and declined in June and July at a faster rate than any other time in the past two years. In the six months to June, the value of flats, units and townhouses approved ($5.718 billion) was up on the same period last year ($5.647 billion), according to ABS figures – but not by much. Moreover, at $12,578 billion the total value of multi-residential dwellings approved over the twelve months to June was less than the current value of building activity, meaning that new work is not quite coming in as fast as existing work is being done.
Not surprisingly then, forecasters are not optimistic about near term prospects. In 2011/12, HIA sees the number of dwelling starts in the sector dropping back to 49,320 – down 14.66 per cent from 2012/11 but still well above lows of 39,190 experienced in 2008/09. The Construction Forecasting Council (CFC), too, sees the value of work done easing back by 3.3 per cent to $13.176 billion in the twelve months to March next year.
Beyond that however, activity looks set to pick up from mid next year as projects such as The Landing in Gosford ($1 billion) get going. In 2012/13, HIA expects the number of starts to bounce back to 54,890. In the same year, the CFC expects the value of work done to reach $15.479 billion. Beyond that, the CFC is optimistic, expecting activity to reach $17.860 billion by 2014/15.
In significant statewide developments, according to HIA forecasts:
• The number of starts in New South Wales will increase from 15,430 to 15,750 in 2011/12 before surging to 18,380 in 2012/13 once projects like The Landing and a mixed use redevelopment of Penrith Panthers’ landholdings ($800 million) get into full swing.
• After strong activity in 2010/11, the number of starts in Victoria is set to drop back from 22,690 to 16,070 this year before recovering mildly to 16,590 in 2012/13.
• In Queensland, after dropping back from 9,310 to 8,900 in 2011/12, the number of starts is expected to bounce back to 9,950 in 2012/13.
• Flat conditions are expected for South Australia, where the number of starts is set to ease back from 2,560 to 2,430 this year before rising again to 2,520 in 2012/13.
• Western Australia is expecting a strong rebound, with the number of starts reaching 4,400 in 2012/13 after contracting from 3,650 to 3,450 in 2011/12.
• Subdued conditions are expected in Tasmania, with the number of starts dropping back from 820 to 640 in 2011/12 before rising back to 710 the following year.