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How important is the commercial construction sector?

By Greg Bell

The end of 2015 signalled an uncertain time for the construction industry, as the latest figures point towards a slowdown in certain sectors. Results of the December Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (PCI) show the extent of the slowdown, as well as the industry's hopes for 2016.

The upshot is that more commercial property for sale on the Gold Coast needs to be made available, as well as other parts of the country. Residential construction is currently leading the charge and some significant changes are needed to ensure that strength is uniform across the board.

A closer look at the figures

Analysis of the December PCI shows commercial construction registered a reading of 40 over the course of the month. This marks a 6.3 per cent fall from November levels and is significantly lower than the 12-month average of 47.3.

To put the data into context, apartments activity recorded a reading of 54.3, while the construction of houses ranked at 52.6. Fifty is usually considered the point between expansion and contraction, showing there's still some way to go before commercial building picks up pace.

Keeping up with residential construction

In many cases, it's residential building activity that's been supporting the economy over the past 12 months. If the country's accounts are going to stay in negative territory, commercial property will also need to prove its worth.

Chief economist at the Australian Industry Group Julie Toth explained that apartment building activity is now likely to reach its peak, giving commercial construction opportunity to take its place.

"Commercial construction has failed to register any meaningful growth through much of 2015. Looking ahead, the downturn in new orders across all four construction sub-sectors in December is of concern for 2016," she commented.

Master Builders Australia (MBA) believes the positivity currently seen in the residential construction market still has some way to go before it runs out of steam. Chief economist Peter Jones believes land release will be critical to this trend – and the same goes for commercial projects.

Identifying new opportunities for office leasing on the Gold Coast and other parts of the country will be critical in the near future. Although there's already a strong pipeline of new work in some parts of the country, this success will need to be more evenly spread if it's to have the desired positive effect on the economy.

Offering employment opportunities

Commercial construction also plays an important role in the national economy for the employment opportunities it offers to the nation. The PCI showed that the employment sub-index registered a reading of 50.1 in December, putting it at a critical point between expansion and contraction.

This result was down 4.4 points from the previous month, but nevertheless remains marginally higher than the 12-month average of 50. It will be something policymakers are keen to keep an eye on in the near future, as more commercial projects come to the fore.

Large-scale commercial projects provide opportunities for job seekers, as well as those training to join the profession. If initiatives aren't given the green light, then there's a risk that the next generation of builders won't have the skills the industry demands.

Predictions for 2016

The focus may start to shift towards Gold Coast retail leasing and other areas of the commercial property landscape in 2016. MBA has forecast "another year of solid growth in the value of building work done", but this of course relies on projects being given the go ahead.

Having the right policies in place will be a step in the direction, as well giving plenty of incentives for future investment in commercial projects, which are ultimately essential to the success of the wider economy.

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