The business of building: where it's at now and where it's heading

The nation's leading non-residential construction companies are forecasting a recovery in major project work through to mid-2019 following three years of declining construction activity.

A key positive will be strengthening non-mining infrastructure work in line with the significant growth impetus from public sector spending on transport infrastructure projects. Commercial building (including offices, retail buildings and industrial premises) will also support construction activity over the period ahead driven by higher levels of private sector investment.

It also appears that the worst of the decline in mining-related construction is now behind us with its negative impact on industry conditions waning during 2017-18. For multi-level apartments, conditions remain strongly positive in 2017/18 as construction companies continue to work through a solid backlog of work. However, this is seen to be the peak year in the current apartment building cycle with activity set to turn down sharply in 2018/19.

The latest figures indicate that after dropping by 2.1% in 2016/17 (current prices), the total value of major project work is forecast to rise by a solid 7.1% in 2017/18 followed by a further lift of 6.8% in 2018/19.

Rising momentum in new road and rail projects will support a strong upswing in the value of engineering construction which is expected to rise by 8.0% in 2017/18 and 10.6% in 2018/19 after turning down by 6.5% in 2016/17. The engineering construction sector will also be boosted by solid growth in telecommunications infrastructure in line with NBN- related investment and "other" civil projects, including sporting complexes, bridges and the construction of Sydney's second airport at Badgerys Creek.

Also on a positive note, commercial construction is forecast to pick-up with the survey pointing to a strong pipeline of work over the next two years. The total value of commercial work is expected to recover from broadly stable conditions in 2016/17 to increase by 1.8% in 2017/18 and a further 9.4% in 2018/19. An improving business environment is helping to support stronger privately funded building activity (+10.3% in 2017/18 and +12.7% in 2018/19), particularly across the accommodation, offices and industrial building segments.

For multi-level apartments, an increase in turnover of 18.9% is expected in 2017/18, coming on top of growth of 16.4% in 2015/16. Further ahead, activity is expected to drop by 15.4% in 2018/19 due to excess supply and major project completions.

The Outlook

For the 2017/18 financial year, the value of turnover from all major construction work is expected to recover by 7.1%, following a 2.1% reduction in 2016/17. Despite a further fall in mining-related engineering construction, an expanding pipeline of publicly funded infrastructure investment is expected to drive stronger activity over the year.

Engineering construction is expected to rise by 8.0% in 2017/18. This reflects a strong lift in the value of infrastructure construction work (18.2%), led by growth in road (+21.1%) and rail (+19.7%) projects. Also dominating the positive outlook is solid growth in revenue from telecommunications infrastructure (+18.9%); pipelines construction (+18.1%) driven by investment in new pipeline infrastructure for gas supply and; "other" civil projects (+16.3%).

In contrast, resources-related engineering construction is expected to continue to decline in 2017/18. Weakness will be concentrated in the oil and gas processing (primarily LNG) sector (-40.0%) as major LNG projects are completed. However, the drag from reduced mining investment (other than oil and gas) is moderating with a slower fall predicted in turnover derived mining projects (-6.3%) in 2017/18 after a 20.7% fall in 2016/17.

C