Building, construction boost tipped for ’11

WESTERN Australia’s construction and development sector is set for a change in fortune after a lacklustre 2010, according to new research by construction industry analysts Davis Langdon.

Davis Langdon’s tender level index has forecast a rise of between 3 and 5 per cent in tender prices over the next 12 months, with most increases occurring in the second half of the year.

Nationally the report found a more subdued outlook, with construction activity levels moderating as federal stimulus work has receded from the market.

But Davis Langdon’s Construction Sentiment survey showed that 71 per cent of respondents in WA anticipated an increased workload over the next 12 months.

In contrast, just 10 per cent of respondents in Queensland believed conditions would improve and workloads would increase over the next year.

Davis Langdon Australia and New Zealand research manager Michael Skelton said there were signs appearing in the market that Perth was on the cusp of an upswing.

“It’s a lot rosier than it was earlier this year, the fundamentals have definitely turned around in Perth in terms of the improvements in underlying demand and where we’re looking in the next 12 to 18 months,” Mr Skelton told WA Business News.

“We’ve been looking at the impact of construction prices forecast over the next couple of years and WA has $93.1 billion worth of approved projects.

“Some of those are in planning, some of them are under way, but $93 billion is just an enormous figure.”

Mr Skelton said a flow-on effect from the upswing in demand for engineering construction was that the office construction market was experiencing a boost.

“We’re starting to see a turn in enquiries for office construction as well,” he said.

“As we see the global economy stabilise and some of those threats out of Europe dissipate, and unemployment coming down in the US, we’ll start to see global demand pick up, and that’s when developers will be able to get enough people to come in and pre-commit.

“Admittedly the vacancy rate for Perth offices is currently just under 10 per cent, but it’s definitely capped out now.

“Over the next 12 months as that improves, and provided that these big billion dollar projects continue to go ahead, there is going to be demand for professional services and trades and so on and so forth out there.

“Within 12 months, provided that nothing out of the blue happens on a global scale, and the vacancy rate keeps coming down, when it gets to about 5 or 6 per cent we’ll see some of those developers coming out and starting to build again.”

The main constraint holding back the construction sector, Mr Skelton said, was the availability of credit for development.

That was also reflected in the sentiment survey, with respondents across the country listing access to finance as the number one obstacle in building and construction.

“Business confidence bounced back pretty fast, but we haven’t seen business investment track along at that same recovery path that confidence did,” Mr Skelton said.

“Access to finance remains the main constraint, but that’s not to say good projects can’t get off the ground.

“With the right developers, the right proposals and good balance sheets, there is money available.”