The dramatic plunge in Australia’s non-residential building sector during 2008/09 is set to be halted by the large injections of government funds flowing into the education and health sectors, according to a new report from industry research company Macromonitor.

The new edition of Australian Construction Outlook – Non-Residential Building is the latest report in Macromonitor’s series on the outlook for construction in Australia. “The outlook for Australia’s non-residential building sector has become more positive, but it remains a tale of two distinct sub-sectors, each moving in opposite directions,” says the report’s author and Macromonitor director, Nigel Hatcher.

Recently released ABS data confirm an upward correction has begun. The value of non-residential building approvals, which had been very weak for nine months from September 2008 to May 2009, showed the first signs of recovery in June 2009 and have since rebounded strongly. Approvals in the September quarter 2009 were up 69 per cent on the June quarter, in seasonally adjusted terms.

“But this rebound has been almost entirely due to the boost to education building coming from the Commonwealth stimulus package, and health building, driven by state government spending, will also play an important role in driving the upturn during 2010,” explains Hatcher. Meanwhile, commercial and industrial building remains in the midst of the most severe downturn since the early 1990s collapse.

In 2008/09, the downturn in commercial and industrial building dominated the sector, with total non-residential building commencements falling by 20 per cent in real terms. The report forecasts that, in 2009/10, non-residential building commencements will see positive growth of 11 per cent, as the upturn in government spending moves into full swing, more than offsetting the downturn in commercial and industrial work.

Hatcher notes that, “This is the first time that a program of Government building work has been of adequate magnitude to offset a major downturn in commercial building in Australia.” Looking beyond the current financial year, Macromonitor expects the pattern in each sub-sector to reverse itself, with commercial and industrial building entering an upturn in 2010/11, while social and institutional building commencements will turn down sharply as the government programs wind down.

The inter-related problems of lending constraints, weak demand for space and oversupply, will continue to drive commercial building activity lower in 2010. New additions to space remain high, as completions flow through from the 2007/08 peak level of commencements, while demand for space has plunged.

The Macromonitor report concludes that an upturn in commercial and industrial building commencements will require both an improved flow of financing, as well as sustained growth in demand for space and an absorption of the current oversupply. The report is forecasting the next upturn in commercial and industrial building commencements to begin in 2010/11, gathering momentum in 2011/12.