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News

25 Feb
ACORPP Construction Market Voice - Industry will have to “tier down” to survive

BW Construction Voice Image  

With Gordon Bateup, Director ACORPP

 

There is plenty of crystal ball-gazing going on in WA right now as businesses in the construction industry try to figure out how the year is going to pan out.

Depending on who you talk to or read, the messages are mixed. Some people will tell you they’ve never been busier; others wonder where their next job is going to come from. The Australian Industry Group (Ai Group) is a peak industry association that represents the interests of more than 60,000 businesses in a wide range of sectors.

It forecasts that the construction contraction that’s currently being experienced could see a glimmer of recovery in 2016-17. “A bigger pipeline of infrastructure activity will help to soften the impact of the downturn in mining and heavy industry investment,” it reported. “The outlook also points to a gradual recovery in commercial construction over the next two years, largely on the back of stronger private sector building activity.”

 

Oil 

Of course, their perspective is Australia-wide and that commentary needs to be carefully considered in a local setting.   I don’t think there would be too much disagreement with a view that the WA construction industry had entered 2016 in an environment of uncertainty.

Of course, there are plenty of infrastructure projects that are well underway including the new stadium and a variety of road projects. There are still plenty of residential apartment building projects to be completed, but they will be entering a swollen market that will take some time to digest. Investors in that segment will be in for some pain as they try to attract and keep tenants, something the commercial sectors already knows only too well.

Construction Image

 

The outlook in major commercial construction for 2016 is nowhere near as buoyant, at least in what might be considered the traditional top tier projects like office towers.

My view is that we will see a downward trend, a “tier jumping” where major construction companies will lower their sights in pursuit of profitable work in the below $20 million segments like aged residential care, new or refurbished suburban shopping centres and so on.

This rejigging of business strategy is understandable as the alternative would likely be business restructure and, inevitably, redundancies. However, these big businesses will be targeting segments once profitably served by smaller companies who will face the threat of major brands looking to feed on their traditional projects.

This could set the scene for a Darwinian “survival of the fittest” scenario where companies, big and small, battle it out to demonstrate who can deliver best value. That could lead to a shake out of players.

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The big winners will be the investors bankrolling these type of projects who will really be able to drive the best possible deals – and, of course, the tenants who will still have to be attracted to these new offerings. Despite the gloom, there are some indicators the market could begin to pick up in the second half of the year as a number of tenders move out of the submission stage toward project starts.

These silver linings include: retail, aged care, infrastructure and different opportunities might exist in regional areas.

In the meantime, construction companies will have to do what they do best: roll up sleeves, sharpen their costing pencils and go for whatever they reckon they’ve got a good chance of winning.

 

 

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Out of the Vault and into a snappy Christmas

 

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