Commercial construction takes a hit

An expected pick-up in commercial construction activity in Western Australia has been wiped out by COVID-19 restrictions, with Master Builders Association now tipping a small decline over the next two years.

The outlook is worse at a national level, with an expected decline in commercial construction now forecast to be much deeper.

MBA said the sector was facing a devastating downturn unless governments acted to provide stimulus.

In WA, total commercial building activity is expected to slide from $3.9 billion in the current financial year to $3.5 billion and $3.4 billion over the next two years before recovering.

The MBA had previously tipped annual spending to be above $4 billion.

The largest fall will be in retail and wholesale trade, presumably reflecting less spending on big shopping centres after current projects like the $800 million expansion of Karrinyup Shopping Centre is completed..

The bright spots are education and health, which are both tipped to expand.

The big investors in this space are led by Ramsay Health Care, which has expansion projects at both Hollywood Private Hospital and Joondalup Health Campus.

Nationally, MBA said commercial building activity would slide from $44.7 billion this year to just $38 billion in 2021-22.

Compared to its previous forecasts released in February, MBA expects commercial building activity to be 15.7 per cent lower in 2020-21 and 11.5 per cent lower in 2021-22.  

MBA chief executive Denita Wawn said the COVID-19 lockdown had obliterated private sector demand in and a gradual easing of restrictions was not going to replace that, so governments needed to act.

“The impact on the commercial construction sector (as well as residential construction) is severe because the majority of projects are not publicly funded,” she said.

MBA has 459 projects in its current pipeline of potential commercial building projects in Australia.

Most of these projects (314) are private sector funded projects.

Ms Wawn said logical areas where government stimulus could help build the bridge to recovery were where the public sector dominated, such as in education, health and defence.

“Bringing forward maintenance on government buildings is a stimulus measure Master Builders has been calling for and we commend the Department of Defence which has just announced $870 million in estate works which will bolster the confidence of construction contractors and subcontractors,” she said.

Ms Wawn also called for an extension of the government guarantee for working capital loans to projects above $50 million to reduce the impact of financial risk from COVID-19.