Engineering Projects Bolster Australia's Construction Sector

Engineering projects and home building work have commanded the most attention in Australia’s construction sector in August – offsetting a significant decline in apartment building.

Apartment building activity contracted, registering 44.7 points in August, down 7.9 points from July, the latest Ai Group/Housing Industry Association Australian Performance of Construction Index (PCI) shows.

The decline tempered overall construction activity in August despite stronger than expected conditions across the sector. Ai Group senior economist Shane Garrett said the downturn in new residential building will continue to unfold over the coming years.

The 12-month average of the construction index is 51.2, a reading above 50 suggests an expansion in activity levels while anything below signals a reduction. August's overall construction activity measured 55.3, falling 5.2 points from July's record high 60.5. August's reading is the lowest index reading in five months.

Source: CoreLogicHowever, an increase in apartment commencements energised industry growth. CoreLogic commercial analyst Eliza Owen said that August was an unusually high month for apartment and unit commencements, rebounding from a low June quarter.

“We saw the total value of new development applications in the pipeline over August recording an estimated $17.5 billion dollars.

“This is 19% lower than July, when the proposal for a $7 billion airport in Victoria pushed the construction value of new pipeline projects to $21.7 billion.” Owen said.

CoreLogic’s Construction Monthly Report indicated that the surge was partially due to the contract being let on a $1.5 billion residential housing estate in the Ryde council of New South Wales. The project, known as the Ivanhoe Estate at Macquarie Park, is expected to be completed in 2027.

The site will be developed with more than 3,000 units, including at least 950 social housing units and 128 affordable rental units.

August saw around $5.6 billion worth of construction projects commence across Australia, with 46% of projects in the apartment and unit space. Residential project construction commencements typically held a 31% share of commencements, Owen said, which put August’s numbers well above the six month average.

“Of the new pipeline applications coming in across Australia, 42% of the total construction value came from civil engineering projects, while 36% came from apartments and units,” she said.

In the apartment and unit space, the median project construction value among development applications was $1.4 million, making it the highest median project value across the construction segments in the pipeline.

In Queensland, construction has commenced on a mining project worth over $35 million. The project is a bauxite mine located 35 km north of Mapoon, and will have an expected mine life of 15 years.

[Related reading: What will the construction downturn actually look like?]

Source: CoreLogic