Commercial construction facing mixed outlook after a high

Forecasts released today by Master Builders Australia suggest that the next few years will be a bit softer on the commercial building front.

“Commercial building has been a bit of a dark horse over recent years, growing steadily to reach its highest level on record,” Master Builders Australia’s Chief Economist Shane Garrett said.

“Demand for commercial building projects has been whetted by the environment of exceptionally low interest rates. A significantly larger population means that we need more schools, more hospitals, more shops and more restaurants. In addition, the strong gains in employment have boosted the amount of office building work making it over the line,” he said.

“We expect that the volume of commercial building across Australia totalled $45.75 billion during 2018/19, an increase of 8.0% on the previous year,” Shane Garrett said.

“The favourable economic backdrop is forecast to propel commercial building forward by another 6.5% during 2019/20. However, market activity is then expected to revert to lower levels. By the end of our forecast horizon in 2023/24, the size of Australia’s commercial building market is projected to be 8.9% smaller than in 2018/19,” he said.

“The segments to see the toughest conditions over the next few years include building for accommodation, offices and education. These are the parts of the market which generally performed best over recent years,” Shane Garrett said.

“It is not all bad news however and several segments of commercial building are set for healthy growth over the period to 2023/24, including retail/wholesale, transport buildings and health facilities,” he said.

“If the rollout of newly committed government infrastructure work were to be speeded up, this would enhance the viability of more projects in the commercial building space and get recovery underway more quickly,” Shane Garrett said.