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Commercial Development On The Rise

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Commercial development on the rise.

Despite residential building experiencing a slowdown, new data shows that commercial building approvals are seeing a sharp uptick. According to The Australian Bureau of Statistics (ABS), non-residential building approvals grew 39.8% last month, well ahead of the residential results which recorded a 7.7% improvement.

Over the past 12 months, the value of residential approvals has declined 3.15% while the value of non-residential developments continues to grow, up 3.61% on the year to February 2023. The continued commitment to develop commercial assets in this environment is mixed across regions and asset classes.

So far, Victoria is showing the greatest value of new development, increasing their approvals by 19.56% over the year, followed by NSW at 8.77% and Queensland up 4.45%. South Australia, ACT and Western Australia saw approvals fall over the same period by 42.56%, 37.99%, and 2.91% respectively.

Office assets continue to see the greatest volume of planning activity, with a 25.69% increase in approvals this year.

The Industrial sector is also seeing demand rise given the overall limited vacancy in this asset class, seeing a 20.35% increase over the year to February 2023, dominated by warehouse developments. Meanwhile, retail and healthcare assets continue to grow, up 5.28% and 4.29% respectively, while aged care has fallen 3.47%.

Ray White Commercial Head of Research, Vanessa Rader, said that despite growing approvals the recent RLB Crane Index that observes current construction activity by counting cranes on the Australian skyline has recorded an overall dip across the country both for residential and commercial assets.

“Data from Q1 2023 highlights 836 cranes currently across the Australian skyline; 293 were new additions while 325 were removed, resulting in a net loss of 32 over the last six months. Residential, however, continues to be the dominant asset class representing 63.6% of all cranes sitting relatively stable with only a three-crane loss.” Ms Rader said.

“Coastal markets such as Gold Coast, Sunshine Coast, Sydney’s Central Coast and Wollongong all recorded residential additions, together with Perth and Adelaide; while Brisbane, Melbourne and Sydney all have declined,” she said.

“Given the mismatch between demand and supply for the residential market, pressure on development will likely continue which may see these crane rates grow across the residential segment in the coming year.”

Ms Rader said that across the commercial markets, there are some mixed results. “Despite Melbourne’s strong approval pipeline, this region saw the greatest decrease in cranes over the last six months, losing 17 as all asset types saw a reduction, signalling an end for some projects in the CBD and inner Melbourne,” she said.

“Over the last 12 months, however, Melbourne saw a net decline of nine non-residential cranes, behind Perth who lost 10, notably in the education and healthcare sectors, while Brisbane’s results remain stable.

Sydney’s annual growth has been off the back of infrastructure projects with civic, civil, education and healthcare all recording new crane additions while commercial, data centres and hotels have declined.”

She said given the strong approval pipeline these results could again rebound, however, high construction and financing costs may continue to dampen activity, particularly for those sectors such as office and retail, which have had reduced demand levels.

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