Australia's construction sector is suddenly looking good as new engineering projects surge

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Activity levels across Australia’s construction sector have never been stronger, according to the latest Performance of Construction Index (PCI) released earlier this week.

Conditions across the sector are booming, and this probably explains why.

According to the latest Construction Monthly released by CoreLogic, the pipeline of new construction work in Australia is soaring.

“CoreLogic construction figures for July, compiled by commercial research analyst Eliza Owen, estimate that the value of construction entering the pipeline in July was $21.7 billion,” the group said in a note on Tuesday

While 18% lower than June, CoreLogic said the figure was still well above the 12 month average of $14.6 billion per month.

“The high construction value of new pipeline projects in July was largely due to a single, civil engineering project in Victoria,” CoreLogic said.

“In June, it was an $8 billion wind farm proposed off the coast of Gippsland. This month, it is a $7 billion airport proposal near Koo Wee Rup, south-east of Melbourne.

“Thus in two projects alone, Victoria has seen a prospective $15 billion worth of construction in the past two months.”

As a result of new civil engineering works in Victoria, Owen said that the pipeline of new work in Victoria stood at $12.4 billion in July, accounting for a massive 57% of total new work proposed nationwide during the month.

“The pipeline values being added to potential construction in Victoria are extraordinary,” said Owen.

“For almost 3 years, New South Wales has outperformed construction growth in Victoria, and led growth in pipeline values. The last two months truly show a shift in the distribution of capital in Australia’s construction industry.”

Courtesy of the boost provided by Victoria, CoreLogic said that civil engineering made up the largest contribution to new projects, accounting for 45% of the 2,087 projects captured in the July report.

These charts from CoreLogic show the breakdown of new projects by type and value in July.

Source: CoreLogic

And this shows where they were located across the country.

Source: CoreLogic

Outside of civil engineering projects, CoreLogic said the pipeline of new work in residential apartment construction across the country also rebounded strongly in July, jumping 54% from a month earlier to $5.5 billion thanks to new applications to build on the New South Wales central coast, south-east corner of Queensland and in Australia’s capital cities.

That rebound fits with Australian building approvals data for June which revealed an enormous 20% surge in private-sector apartment approvals from a month earlier, seeing the decline from a year earlier slow sharply to 6.6%.

On a broader perspective, the strength in the CoreLogic data also fits with the new orders subindex in the PCI report.

According to the Ai Group, the authors of the PCI report, the new orders subindex surged to 64.6 in July, indicating that new orders were rolling in at levels rarely seen in the 12-year history of the survey.

By individual sector, the group said new order subindices for housing, apartments, commercial and engineering came in at 63.1, 66.7, 74.2 and 56.5 respectively, pointing to surge of new work across the broader construction sector.

A reading above 50 indicates that order levels increased from a month earlier. The distance away from 50 measures the speed of the improvement.

Combined, the CoreLogic, PCI and June building approvals reports all provide optimism that falling residential apartment construction in the years ahead may be cushioned by a pickup in infrastructure, commercial and housing works.

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