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Sky-high: Surging apartment construction is driving growth

constructionSurging apartment construction is driving growth across multiple states 

The multi-unit apartment and townhouse construction industry has reached record highs over the past five years. However, volatile conditions have led to mixed results for many construction firms.

“Construction features prominently in IBISWorld’s Top 500 Private Companies list for 2016,” said IBISWorld Senior Industry Analyst, Mr Anthony Kelly. “The list features 57 construction companies, including three companies in the top 20: BGC, Meriton Apartments and Hutchinson Builders.”

“Year-on-year revenue growth for the 57 listed construction companies varied widely, from growth of 327.5% to a decline of 49.1%, reflecting a tumultuous year in construction,” said Mr Kelly.

The top five private construction companies for growth in this year’s list include Central Equity, Lipman, Mainbrace Constructions, Pellicano Builders and Burbank Australia, which have displayed revenue growth of between 327.5% and 51.8% over the past year.

While construction companies generally performed well in this year’s Top 500 Private Companies list, four appeared in the top 10 private companies with the biggest revenue declines, including Murphy Pipe and Civil Group, S J Higgins Group, Vaughan Constructions and Grocon Group.

Multi-unit residential construction

The multi-unit apartment and townhouse construction industry has grown strongly over the past five years, boosted by foreign investment and Australians becoming increasingly comfortable with inner-city living.

“Underlying demand for new housing is underpinned by Australia’s migrant intake, population growth, foreign investment in the property market, historically low mortgage interest rates, and an increasing desire to live in inner-city multi-unit apartments and townhouses,” said Mr Kelly.

IBISWorld expects the multi-unit apartment and townhouse construction industry to post annualised growth of 3.8% over the five years through 2016-17, to reach $17.4 billion. Revenue is projected to strengthen further over the five years through 2021-22, increasing at an annualised 5.0% to reach $22.1 billion.

Sharp correction

“Despite the industry’s bright outlook, revenue is expected to slump by 17.3% over the current year as investors hold off on new developments to allow recently added stock to be absorbed,” said Mr Kelly.

“Recent additions of new apartment stock have exceeded immediate housing requirements, and vacancy rates have climbed in several major markets, particularly in Melbourne and Brisbane. The decline in activity also reflects the anticipated completion of several major projects during 2016-17,” said Mr Kelly.

Industry revenue is expected to decline sharply over the current year, before stabilising in 2018-19. Industry revenue is forecast to recover strongly following these corrections, reaching new record highs over the next five years as demand for new housing and rental accommodation underpins a return to accelerated growth.

Around the nation

Apartments have captured an increasing share of total residential building commencements over the past five years, particularly for inner-city multistorey apartment complexes. These projects are expected to make up 39.7%, or $6.9 billion, of the industry’s total revenue of $17.4 billion in 2016-17.

“Over the past five years, much of the industry’s focus has been on well-publicised multistorey apartment towers in capital cities,” said Mr Kelly.

South Australia, Tasmania and the Australian Capital Territory have experienced declines in the value of multi-unit and townhouse residential property construction activity over the past five years. Other states, particularly New South Wales and Queensland, have seen strong growth from the same market.

Foreign investment

Multi-unit residential commencements are forecast to surge from 2019-20 onwards as more projects are brought to the start-up phase. Foreign investment in apartment developments, particularly from investors in China, Singapore and Hong Kong, is likely to support this growth.

“The Australian market is expected to remain attractive for foreign investors, especially as the value of the Australian dollar is anticipated to remain low,” said Mr Kelly.

For more information on these or any of Australia’s 500 industries, log on to www.ibisworld.com.au or follow IBISWorldAU on Twitter.

 

Industry reports used to develop this release:

Construction in Australia

Multi-Unit Apartment and Townhouse Construction in Australia

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For a printable PDF of this release, click here.

For more information, to obtain industry reports or to speak with an analyst, please contact:
Anne Wild / Shae Courtney
IBISWorld Media Relations Representatives – Anne Wild & Associates Pty Ltd
Tel: (02) 9440 0414
Mobile: 0420 736 136
Email: scourtney@awassociates.com.au

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