Commercial property construction expected to continue at a good pace

Although some aspects of non-residential building are suffering, commercial construction is a rising star. The wind-down of resource-related construction is still being felt and is amplified by lowering commodity prices around the world.

According to the Reserve Bank of Australia's (RBA) Statement on Monetary Policy for November 2014, in which the official cash rate was maintained at 2.5 per cent, an oversupply of iron ore features strongly in world-wide commodity price decreases.

The official statement read: "Commodity prices overall have fallen further since the previous Statement, with notable declines in the prices of iron ore and oil, although prices of base metals have risen. Much of the decline in iron ore prices this year owes to the increase in global supply following significant expansion in capacity, including in Australia."

Commercial real estate construction increases

The latest Construction Outlook report from the Australian Industry Group (Ai Group) shows that declining construction in the resource sector and other areas is being bolstered by increases in commercial real estate.

The sub-sector, which includes the building of offices, retail premises and recreational facilities is expected to grow 6.1 per cent over 2014/15, a big improvement on the 2 per cent expansion of 2013/14.

Further growth at a more moderate rate is anticipated for 2015/16, with a 3.2 per cent gain on the cards according to the Ai Group report.

Speaking to the effect of construction on the economy as a whole, Ai Group director for Public Policy, Peter Burn, noted a strong positive movement for the Australian commercial property sector, although there had been a slip in the previous month.

"With further growth in October, residential and commercial construction continued to lead the rebalancing of the economy away from the emphasis on mining investment that has been such a feature of domestic economic activity in recent years," said Mr Burn.

Confidence booms

With construction of new commercial sites picking up, it's no wonder the ANZ/Property Council Survey has picked up on an exciting elevation in business confidence for the December quarter.

In an October statement, Property Council chief executive, Ken Morrison, noted positive effects for the broader economy as confidence and construction activity increase.

"Overall confidence levels are up, with the property industry well positioned to contribute to economic and employment growth in 2015," said Mr Morrison.

The Property Council expressed a need for all levels of government to maintain an accommodative policy towards construction to aid further building of commercial, and other property, ultimately helping the economy to strengthen. The recent RBA decision to maintain the low cash rate is a positive response to this sentiment.