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Monday, 4 December 2017

Big day at the office

Office space

Allaying fears of a construction downturn in Australia, the value of building jobs approved has surged to its highest ever level. 

This has partly occurred because of an apparent soft landing for residential approvals. 

But it's also due to a record surge in non-residential building approved.

Huge numbers!

The boom has been driven by some major office projects, commercial buildings, factories, warehouses, and other industrial buildings.

Melbourne blitzing it

The building bonanza was initially driven by Sydney, but now Melbourne looks set to take over the mantle.

Across the past few months, Melbourne has seen a spate of major office projects approved as the population soars in the Victorian capital.

Despite the potential shortage of some types of office space, there have been notable concerns about unsustainable office asset values and significant yield compression.

But for the time being at least, prospective developers don't appear to be too bothered.  

With the state government's stamp duty coffers overflowing, Sydney could yet retake the lead in the non-residential building race, in the harbour city's quest for full employment.

It was announced in that past week that $2.3 billion would be earmarked for the demolition and rebuilding of two sports venues in Sydney, namely the footie stadium at Moore Park and the soon-to-be-former Olympic stadium at Homebush.

The Olympics was only held in Sydney in 2000, so it's not exactly been a long time between drinks for Homebush stadia.

Even the short-lived convention & exhibition centre at Darling Harbour lasted longer, from the 1988 bicentennial until its recent demolition and rebuild.

The nearby Sydney Entertainment Centre made it from 1983 to 2016 before it was demolished.


An important point often overlooked in construction forecasts is how soon assets can be deemed obsolete, even in developed countries such as Australia.

It's one possible explanation for the resilience of the iron ore price, with the spot at the highest level in nearly 3 months, despite a massive ramp up in supply (today the price is above $70/tonne, up from just $38.30 in December 2015!).

As China urbanised, in addition to its new roads, bridges, ports, and other infrastructure, it built millions of new apartments (including most infamously the dozens of vast apartment towers at Ordos Kangbashi from 2003) leading to fears of an unquenchable oversupply.

But Ordos is filling up as planned, many of China's apartments are now approaching two decades old, and will soon need to be replaced.

Stock obsolescence is rarely well accounted for in predictions of housing oversupply in Australia too, for that matter.