The government funded transportation infrastructure boom continues to support growth in engineering construction activity. Annual growth slowed to 6.4% over FY24 to be $34.9bn, the highest level on record. We expect activity to reach a cyclical peak of $36.9bn in FY26.
Amid a relatively weak building sector (particularly for residential buildings), engineering construction continues to provide growth support for the broader construction industry. While growth continues to normalize from recent peaks, the most recent engineering construction work done data (for the June quarter of 2024) shows some strength remains.
The Australian engineering construction industry is characterised by booms and busts of activity, not only by subsector and state but by regions within states and territories.
Market conditions for the retirement living sector in Australia are robust, with occupancy rates having surged to 95% in 2023 – near the effective rate of full occupancy. This reflects a mix of strong demand drivers and lagging supply.
With the current weakness in residential building and key commercial and industrial segments of non-residential building, growth in engineering construction has been a support for the construction industry and – given the multipliers involved – the broader economy. (Engineering construction covers transport, utilities and mining and heavy industry construction.)
Construction cost escalation has slowed from the unprecedented inflationary spike experienced by the sector in 2022 and 2023. The recent surge in construction costs was primarily driven by supply-side factors; commodity market volatility and the energy cost crisis has shifted up manufacturing and transport costs, compounded by supply-chain disruptions from the lingering impacts of the pandemic.
The approvals lead for non-residential building continues to soften, with March quarter 2024 maintaining the recent downward trend in project approvals. While a normalisation beyond COVID continues to impact for some sectors, broader cyclical demand drags are becoming more obvious.
The most predictive near-term leads suggest net overseas migration (NOM) to Australia will hold near a record level for FY2024. We have conservatively revised upwards our expectation for NOM to 485,000 (+90,000).
The 2024/25 Federal Budget delivered little to shift the outlook for building construction, although there was modest movement connected to housing, tertiary education, manufacturing, and defence.
The 2024-25 federal budget affirmed the forecast changes we made in the April 2024 edition of our Engineering Construction in Australia (ECA) service. We continue to expect publicly funded activity to average $54.1bn over the five years to FY28, compared to an average of $42.1bn over the five years to FY23.
Following a long period of stagnation, machinery & equipment investment has experienced strong growth since the start of 2021 (Chart 1). At the end of 2023, real expenditure was around 30% higher than the average over the past decade and had surpassed the previous peak recorded during the mining investment boom in the early 2010’s.
The sustainability of a building is best measured through its carbon footprint. This has two main aspects – the embodied carbon from construction and the emissions from ongoing use.
The Australian construction sector is facing a challenging period as costs and capacity constrain activity levels.
Calendar 2024 marks a turning point in the construction and infrastructure industry in Australia, with total construction work done expected to fall in real terms through the year for the first time since 2020.
Engineering Construction in Australian Executive Summary
A pipeline of major projects (contract value at or above $50 million) totalling $15.4 billion nationally is expected to break ground in calendar year 2024
The passing of the previously delayed Housing Australia Future Fund (HAFF) means that all the Albanese government’s announced housing policies are now in place. These policies represent a minimum funding pool of $5.5 billion stretching to the end of the decade, potentially lifting as high as $10 billion if all targets are met and excess fund returns achieved.
Negative momentum for total building in FY2023 (-8%) is expected to continue in FY2024, with activity sliding a further 11% to $108.4 billion (constant FY2021 prices). The uplift in build costs and a large backlog of work that is proving difficult to draw down are amplifying the demand drag of higher borrowing costs. Delays and builder administrations are further supressing home buyer confidence.
The pipeline of build-to-rent (BTR) developments across Australia continues to swell, with our project tracking currently capturing a pipeline of circa 45,000 announced units. Around 5,900 units have broken ground in FY2023, with a further 15,000 geared to commence across FY2024 and FY2025
The maintenance masterplan helps you understand when existing maintenance contracts will expire and will next be tendered enables contractors to identify, plan, and strengthen relationships for these opportunities.
