With an oversupply of apartments prevalent in several cities in Australia, fears of a construction slowdown became very real. As more and more investors failed to take on the reigns of available housing across the country thanks to curbs on investor loans from banks and other lenders, the construction sector shifted its approach to non-residential buildings.
An uplift in the commercial construction sector included a focus on retail, offices and industrial building as a way to support a transition in the economy towards a more service-driven environment, including businesses engaged in tourism, hospitality, healthcare, aged care, education and much more.
The change in market conditions indicates that commercial construction in Australia is set to drive growth of the local industry much faster than residential building. In recent times, the commercial construction industry has been expanding at its highest rate in over a decade – a reflection of improved business sentiment and more investors in the commercial sector.
The strong performance of the commercial building industry helped to offset the weakened residential construction industry. The volatile residential building sector has been up and down in the recent past on account of tighter lending norms and weak investor sentiment. Pockets of oversupply in certain areas have also contributed to the constraint on building activity in the residential sector.
While the commercial construction sector continues to boom thanks to new orders and enhanced business opportunities, elevated costs for construction materials, energy inputs, suppliers and commodities continue to be real threats to the performance of the industry in the long run.
The increase in prices is an indicator of the pressure on profit margins for construction companies and should be considered carefully during any tendering process if they are to remain viable operators in the future.
With building activity strengthening in the sector, it’s clear that employment will also continue in an industry with previously high levels as well. The increase in employment is reflective of the healthy state of the industry. Businesses engaged in construction must ensure they have enough labour resources in place to keep up with more demand in the future.
New entrants to the industry now face lower barriers once they meet all state and territory licensing and registration requirements, which is improving competition between players and taking the overall sector to a new level. However, new entrants will need to compete more severely for market share, which is already taken up by existing players in the Australian construction industry.
While it has been a bit of a mixed bag for the general construction industry, the future looks strong with the potential opportunities available for businesses.