International construction and development consultants Davis Langdon’s second quarter tender level index shows a decline nationally in the industrial sector over the past 12 months and says several indicators in the second half of this year point to a further contraction in most non residential sectors.

Davis Langdon’s Leading Indicator Index for industrial construction measures the movement in construction prices associated with industrial projects across Australia.

Managing Director Mark Beattie said the industrial sector’s outlook remains cautions, with concerns about the workflow gap between the completion of stimulus works and new private sector investment widening.

“The industrial sector was one of the worst hit during the downturn and, except for a few select locations across the country, it is yet to show any solid indications of a recovery,” he said.

“In some regions there is a threat of oversupply and reduced demand, while in others such as Adelaide, the pause in supply during the downturn may lead to rental pressures in the medium term once demand strengthens.

“The big retailers’ demand for distribution centres is one of the only bright spots on the horizon for the industrial sector at the moment.”

Mr Beattie said these non-discretionary goods retailers fared better during the GFC and are now well placed to implement their development strategies. He said excluding these owner occupiers, there had been little other development activity.

Davis Langdon’s Australia and New Zealand Research Manager, Michael Skelton, said the figures for the second quarter showed that the weighted national average of the Industrial Tender Level  Index dropped by 0.3% over the last year.

He said looking ahead Davis Langdon was only anticipating a very gradual rise in prices in the range of one to two percent nationally with the exception of Darwin which was enjoying very strong industrial activity levels.

A review of the individual major markets around the country by Davis Langdon revealed the following:-  

•       Sydney’s industrial sector has been slow to rebound from the overall downturn in the economy leading to reduced demand for industrial units. Some select areas, particularly small scale developments in the northern suburbs saw strong activity as the slowdown took hold and this has the potential of leading to an oversupply situation in these areas. Overall construction activity is subdued; a number of projects have been put on hold and the market continues to be very competitive with keen pricing being submitted to secure the limited work flow that exists. Likely increases in pricing over the next year will only be around one percent

•       Melbourne’s industrial sector has seen low activity levels. However, with one of the largest  industrial markets in the country and rising container activity at the Port of Melbourne it is unsurprising that Melbourne has seen comparatively more developments than over regions. Construction has been limited mostly to distribution centres by owner occupiers and much of this activity has been in the South East and West. Speculative investment remains stagnant with feasibilities constrained by low yields. Prices are expected to creep up by about two percent over the coming year.

•       Brisbane’s industrial sector has shown some positive signs of late, but it is still subdued. Developers face funding issues, but there are also low levels of demand as several industrial precincts remain oversupplied. Over the past 12 months there have been minimal construction price increases and this is unlikely to change in the next year.

•       Perth’s industrial sector is slowly stabilizing and returning to a positive growth outlook. As a consequence rents are starting to show modest growth as space diminishes. However, there is still very little activity in terms of new projects coming on and until rents rise and the demand for space increases this is unlikely to change. Construction prices remain very competitive which has created a very attractive environment for developers who are prepared to move forward.

Davis Langdon’s research showed that the industrial sectors in Adelaide, Townsville, Cairns and Hobart are all stagnant.

Mr Skelton said the stand out nationally was Darwin where the industrial sector was extremely strong. “Speculation is fuelling a number of projects as increases in demand are anticipated to flow on from the progression of several major gas projects,” he said.

“Construction costs are expected to keep rising, even as the stimulus work comes to a close.” Davis Langdon is predicting tender price increase in the range of three to four percent across the next 12 months which is the biggest increase in the nation.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au 

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