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Creation Date: Thu, 19 Aug 2010 GMT

Construction lifts with $4.5bn projects

CONSTRUCTION activity in Victoria and Tasmania is expected to grow strongly for the rest of this year and into 2011, with the value of new projects reaching more than $4.5 billion.

The forecast suggests activity across the commercial property sector is staging a recovery after several big-ticket projects were derailed in the wake of the global economic downturn, falling to a low of just $1.9 billion in the June quarter last year.

In its latest report, BCI Australia, a property information group, said Victoria and Tasmania had weathered the effects of the economic downturn more comfortably than other states.

Projects expected to start include the $778 million Riverside residential estate at Bacchus Marsh and the $450 million Art on the Park apartments in Melbourne.

BCI's chief executive, Matthias Krups, said deferred and abandoned projects in Victoria had risen to 12 per cent due to the global financial crisis, but were still tracking below other states. They had levelled out to pre-crisis levels by the first quarter of this year.

BCI estimated that construction starts this year would peak at $4.56 billion, and would reach a similar level next year.

The start of the $3.5 billion Wonthaggi desalination plant at Kilcunda and the $800 million redevelopment of the former Carlton brewery site in Melbourne had given a big boost to construction activity.

''Construction levels are forecast to remain high in the coming year as general building activity picks up,'' he said. Major projects such as the $1 billion Parkville cancer centre and the $750 million Quattro office towers in Melbourne would go ahead.

The report showed that the residential sector in Victoria and Tasmania - BCI only tracks multi-density projects, not houses - had been surprisingly resilient. Deferrals and abandoned projects had remained between 5-10 per cent.

Mr Krups said some projects remained on the shelf for the forseeable future, including the $70 million, 182-apartment Rippleside Quay project at Geelong, and a $52 million, 180-unit apartment building in Collingwood.

Current trends indicated a strong resurgence in construction starts for the coming financial year, rising from $535 million to $710 million by the middle of 2011.

Mr Krups said commercial sector activity had also recovered quickly, with a shortage of office space likely to spur more development in the short to medium term.

However, some ''big ticket'' items had been lost, such as an $80 million Southbank office and self storage project.

Commercial construction starts were better than expected in the last quarter of 2009, and included the $73 million Government services building in Dandenong.

Starts were expected to reach $287 million by the end of this year.

Mr Krups said deferral rates for the retail sector in Victoria were the highest of any state, at almost 20 per cent last year, but abandonment rates remained fairly constant at about 8 per cent. ''The $45 million Warragul Central is an example of a project that has been deferred indefinitely,'' he said.

The Victorian retail market peaked at $952 million in the first quarter of 2009 before a swift decline to just $67 million in the next quarter due to four projects being deferred or abandoned.

However, Mr Krups said, the forecast for the rest of the year was more positive, with starts expected to rise to $283 million. These included the $100 million Springvale retail development.

On the other hand, the Victorian industrial sector is expected to decline this year to just $22 million in the fourth quarter. Nearly 10 per cent of industrial projects were abandoned in the first quarter, including a $100 million Toolern employment park.

''The sector is predicted to enter a phase of regeneration in the first quarter of 2011 with over $150 million worth of starts,'' Mr Krups said.

Phillip Hoskins, 'The Sydney Morning Herald', August 2 2010