Grave concerns over industrial relations issues and planning problems have weighed heavily on the Australian commercial construction sector with the latest quarterly research of sentiment falling by five points, according to international property and construction consultants Davis Langdon.

The Davis Langdon Construction Sentiment Index has dipped into negative territory from levels achieved in late 2009 and according to Davis Langdon it reveals a high degree of concern by respondents about the real rate of recovery in the construction industry.

Davis Langdon’s Managing Director Mark Beattie said the five point fall in the Sentiment Monitor Index to 61 was ‘surprising’.

“I think that generally there is a perception that things are improving and that economic conditions are on the path to recovery so we were a little surprised to see that in the commercial construction area we are actually going backwards from late 2009 levels,” he said.

The survey of 1800 construction related businesses showed that 85% of participants felt that there are problems in the industry, which was an increase of 4% on the previous survey.

The credit squeeze, economic slowdown and shortage of projects remain the most prominent industry woes.

“The industry continued to question whether the private sector will be able to step up to the mark and takeover when the supply of Government funded projects dries up,” said Mr Beattie.

“Issues of skills shortages and impending industrial relations issues both rose four percent to reach 17% and 9% respectively.

“These problems are somewhat interlinked as some respondents expressed concern that further shortages would create an industrial relations climate where the fewer skilled workers would see higher wage demands.

“Cut throat competition among contractors also emerged as an area of concern with 11% of respondents naming it is a significant issue.”

Mr Beattie said there was a perception that too many contractors were locking in low prices on long term contracts and that this may prove unsustainable.

11% of those surveyed said that the Government’s stimulus package was a problem for the industry and they pointed to an overheated market and uncertainty about whether this spending, ‘propping up the construction industry’, could be maintained.

Other key findings of the Davis Langdon Sentiment Survey were:-

• 63% of respondents feel the industry is experiencing a skills shortage which was a nine percent jump on the last survey.
• In the three months to March participants reported shortages have worsened or remained steady across all trades with the three worst effected being plasterers (up 7%); metal workers (up 6%) and electricians (up 4%).
• Tilers and carpenters were the only two trades where shortages eased.
• Respondents highlighted that demand and budget cuts had let to a lowering of industry standards.

Mr Beattie said for the fifth consecutive survey, access to finance continued to be the main problem for the building and construction sector. He said that respondents anticipated that this problem would ease in the next 12 months.

The second greatest obstacle identified for the sector was the planning approval process and the majority of respondents expected this situation to get worse not better as the year progresses.

“The time taken to obtain planning approvals remains a major sticking point with 70% continuing to experience ‘excessive or protracted’ timeframes,” said Mr Beattie.

“There was a worsening of conditions in most states during the three months to March with 72% of participants in New South Wales and 67% in Victoria saying that planning times were excessive or protracted.

“This represents a reversal of the trend from the last survey.”

On the issue of interest rate volatility sentiment worsened in the three months with a general consensus amongst participants that rates will become a greater obstacle for the building development process during the next 12 months that currently.

“On the industrial relations front, which 85% of respondents say that currently things are good or very good, a 5% decline on our last survey, 25% of respondent’s anticipate bad industrial relations ahead which is a jump of 12% on the December level,” he said.

The Sentiment Monitor asked what industry segments respondents thought would most contribute to growth in the next 12 months. The civil and resource sector remained it top place now accounting for 83% of respondents with the health sector running a close second with 78% of respondents selecting it and retirement and aged care clawed back into third place with 73% of respondents naming it.

Tourism, office and retail remained the weakest sectors in terms of opportunities with 75%, 74% and 63% of participants respectively agreeing that these are the sectors least likely to contribute to growth in the year ahead.

Mr Beattie said the overall finding of the latest Sentiment Monitor survey was that while there may be ‘green shoots of growth’ in the broader economy there were still worrying times ahead for the commercial construction sector.

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