Office property continues to be challenged globally by structural changes to occupier demand. This has impacted vacancy rates and rents and trigged large falls in capital values, to which Australia is not immune
Region: Australia
The Federal government has changed tack on fiscal policy, signalling it will run a much easier stance of policy from next financial year.
The Australian labour market has outperformed expectations over the past two years. From a very tight starting point, employment has increased by 6.1%, and while the unemployment rate has risen, it remains low at 4.1%.
The government funded transportation infrastructure boom continues to support growth in engineering construction activity. Annual growth slowed to 6.4% over FY24 to be $34.9bn, the highest level on record. We expect activity to reach a cyclical peak of $36.9bn in FY26.
The wage price index increased by 0.8% q/q in Q3. Quarterly WPI growth has been steady at the same pace through 2024.
There were no surprises from the RBA at the November meeting, with the board keeping rates on hold at 4.35%.
Australia’s major metropolitan office markets are at the tail end of a major phase of supply that started in FY20 and will run to mid next year, in the process contributing towards the current substantial oversupply.
The labour market continued its very strong run in September, with employment shooting up by 64,100. The unemployment rate held steady at 4.1%, following a downward revision to the August figure, with the participation rate reaching a record high of 67.2%.
Through a period of higher but stable interest rates and cost of living pressures, the combined capital city (CCC) median all-dwelling price grew 7.5% over FY2024 to a fresh record of $987,600.
Vacancy in the Melbourne CBD continued to track higher during H1 2024, increasing to 18.0%, reflecting the
persistent contraction in office demand
Amid a relatively weak building sector (particularly for residential buildings), engineering construction continues to provide growth support for the broader construction industry. While growth continues to normalize from recent peaks, the most recent engineering construction work done data (for the June quarter of 2024) shows some strength remains.
While recent data has come in close to guidance, with net overseas migration (NOM) estimated to total 485,000 for FY2024, the near-term outlook for overseas migration has softened.
Australia’s GDP growth was broadly in line with our expectations in Q2 at a meagre 0.2% q/q. The
economy is lacking a clear engine of growth and the private sector is clearly struggling against
restrictive policy settings.
Stress among home loan borrowers has risen due to higher interest rates, broad cost-of-living pressures, and the gradual slackening of the labour market.
The Australian engineering construction industry is characterised by booms and busts of activity, not only by subsector and state but by regions within states and territories.
It was fantastic to welcome our esteemed clients and guests to our economic forecasting conference in Sydney, Melbourne and online.
It was fantastic to welcome our esteemed clients and guests to our construction conference in Sydney, Melbourne and online.
Stress among home loan borrowers has risen due to higher interest rates, broad cost-of-living pressures, and the gradual slackening of the labour market.
Following hawkish comments from the Reserve Bank of Australia and a rise in monthly CPI indicator readings in the last two months, markets are pricing in a higher probability that the RBA will hike interest rates at its next meeting in August. We think this speculation is overblown.
As expected, the RBA kept rates on hold in August. The cash rate has now been unchanged at 4.35% since November last year. The August meeting looked set to be a close-run decision before the release of the Q2 CPI, which surprised slightly to the downside. The RBA’s statement remains vigilant against upside risks to inflation. But once again, the cautious and hawkish messaging has not been backed up with any action.
