Building booms as skills demand growsFont Size: Decrease...

Building booms as skills demand growsFont Size: Decrease Increase Print Page: Print Adele Ferguson | November 23, 2007
THE boom in Australia's construction industry looks unstoppable, with a survey of 100 of the nation's construction companies predicting another two years of record growth, rising by 7.4 per cent to $82 billion in 2009, which is more than double the level of 2005.

The survey warns of continued cost pressures. Picture: Andy Tyndall
The survey, conducted by the Australian Industry Group and the Australian Constructors Association, also warns that the industry faces continued cost pressures due to skills shortages and supply difficulties in the hiring and purchasing of equipment.

It says the construction boom, which is forecast to increase 10.8 per cent in 2008 and 7.4 per cent in 2009, will be underwritten by infrastructure projects and mining-related construction.

Road projects are estimated to rise 15.4 per cent, rail projects are expected to jump 22.2 per cent, water supply projects by 24.8 per cent, electricity generation and supply by 19.3 per cent and telecommunications 15.1 per cent.

Mining construction is another big area of growth, with expectations of a 12.3 per cent annual growth rate. Other areas of growth include civil projects, such as the construction and upgrading of freight and port facilities, to ease export bottlenecks.

Scott Charlton, chief financial officer of the country's biggest construction company, Leighton Holdings, said this was the first report that reflected what the company was seeing.

"A lot of the industry reports, such as BIS Shrapnel, see the sector flattening off. We have good visibility two to three years out and we see still see growth," he said.

In a separate study, Deutsche Bank analyst Sameer Chopra has identified at least 54 infrastructure/mining projects valued at $90 billion, each costing more than $500 million and set to come on stream in the next three to five years.

These include Origin Energy at Darling Downs in Queensland, Mount Piper Power in NSW, the North South Underground rail line in Victoria, valued at $6 billion, and the Sydney Western FastRail, valued at $2 billion.

Mr Chopra said Leighton Holdings had a strong record of winning such mega-deals. Based on previous projects, Mr Chopra estimates Leighton has an 85 per cent success rate of winning projects costing over $500 million and a 65 per cent success rate of projects costing over $200 million.

Australian Constructors Association secretary Jim Barrett said he was surprised at the industry's ability to respond to the challenges of skills shortages.

The Construction Outlook survey for November revealed that 79.4 per cent of the 100 respondents reported operating at busy or very busy levels of activity during the six months to June - virtually on par with the level recorded in the previous six months, and is one of the strongest readings over the past 15 years.

Mr Barrett said current capacity was the highest recorded in the past 11 years.

Nevertheless, the survey found that over the six months to March 2008, firms expect no respite from cost pressures.

During this period, 74.2 per cent of companies expect major or moderate increases in direct labour costs, 77.4 per cent expect upward pressure on subcontractor rates and 77.4 per cent expect a rise in the prices of construction materials.

Engineering construction is forecast to be the major driver of growth, with total turnover predicted to rise by 14.2 per cent in 2007-08 and 9.7 per cent in 2008-09 to $51.9 billion.

Non-residential building, or commercial construction, is forecast to expand further to generate $30 billion of work in 2008-09, although the pace of growth is expected to moderate to 7.1 per cent in 2007-08 and 3.5 per cent in 2008-09.