2009 construction forecast: can it weather the economic downturn?

It’s all over the news that business and consumer confidence is low and that Australia and other Western economies are heading for tough times. Money is tight, many business sales are falling and company directors are wondering whether their business will survive the downturn.

The spectre of job losses is looming across the general economy as the financial jitters spread out across numerous industries including the Quantity Surveying and Construction sectors.

Construction has been following a steady path during the past decade with continual single digit growth in output. The rises have not been as spectacular as other sectors, but the flipside is that it is predicted that the fallout from the current economic troubles will be nowhere near as severe. However, it is clear that this sector like many others is not immune from the crunch.

The private building sectors have been the hardest hit with many banks developing cold feet and becoming more cautious in funding new projects. Private infrastructure spending is still rising, but apart from that, things are gloomy, which shows how important public spending is.

Alastair McMichael, a Director of Rider Levett Bucknall agrees that the private infrastructure sector has been impacted significantly with “numerous projects put on hold or cancelled due to the shockwaves that are travelling through the Quantity Surveying and Commercial Construction sectors.”

McMichael’s predicts that their workload in the New Year could potentially be “substantially reduced and we will be looking into new opportunities as internal resources become more available.”

Rachel Callaway, National Research Manager of Davis Langdon explains despite the doom and gloom, on a “global level we have seen a lot of former expats returning to Australia as they are no longer required in international jobs. Therefore we are seeing a higher calibre of candidates in our industry.”

“This time last year everyone was screaming skills shortage, now the tables have turned dramatically. Economically, it will take awhile for the situation to turn however the government’s quick act to inject money into the infrastructure sector will help.”

It is evident that the outlook for the construction industry is somewhat cloudy with revenue expected to increase by only 4% in 2009-10 and just 2% in 2010-11. Although, despite this somewhat disappointing prediction, there is still hope with it forecasted that there will be nearly 90,000 construction workers needed every year between now and 2012.

A Director of a National Infrastructure Organisation says “despite the obvious slow down, we won’t be changing our area of focus too much during 2009. If we were purely a building company we would notice a more substantial slow down but because we are well diversified we will have enough to keep us going.”

“The current economic climate will see project funding becoming much harder to secure and will probably never revert to that of the past few years. You will need to have a fundamentally secured project to receive funding, including excellent fundamentals, and larger equity invested with less debt. 2009 will start off very flat and probably wont get up and running until the first half of 2010 where more stimuli will come back into the economy.”

A Project Manager of a National Construction Company agrees that “You currently have to look at projects in cycles as a job we start now won't be finished for nearly two years and the economic climate might be different by then. Everyone knows there is a shortage of housing as the demand is there, the problem is affordability and finance.”

“We are still expanding as a company because the work is still coming through. If residential wobbles a bit then we are looking at other areas such as hotel construction, which is booming. All our skills are transferable between the two, so you just have to adapt when things get a little tighter.”

Director of Conduit Recruitment Adam Walker says that recruitment in the construction sector has also been hit by the downturn. “We have found that most of our clients are either laying people off or have established a recruitment freeze.”

“As far as recruitment in construction is concerned, what we are finding is that there are a lack of vacant positions but also a lack of candidates as the quality candidates have not been let go. Smart companies are using this time to attract candidates who may not have been available in busier times.”

Conduit Recruitment Construction Consultant Greg Ford agrees that “there is an enormous amount of uncertainty in the sector. We are finding that many of our clients have had projects cease or be put on hold, but for some construction companies it is a question of adapting and moving into other areas where work is still ongoing.”

“The beginning of 2009 has seen many of our clients madly tendering with predictions that it will be quiet for most of 2009. We have found that many of our clients have switched their focus from placing permanent roles to contract.”

As for the overall prediction of what 2009 will bring, the building sector will suffer as long as private development has all but stopped. Building will most probably stagnate, infrastructure remuneration might continue to move upwards but it won’t increase at the rate it has in the past.

Alastair McMichael says that during 2009 they will be “sitting tight and keeping our existing team together.”

Adam Walker agrees that there is a lot of “wait and see for clients in the construction and infrastructure sector, although the search for hard to find specialist skilled workers such as client estimators has not ceased.”

“In terms of the skills shortage, there will always be a skills shortage in the construction and quantity surveying space. Although there are presently fewer jobs available because of the climate, when things start to pick up the shortage will not have disappeared.”

The economic downturn has caused a construction slump as these leading construction professionals have revealed, and although there is a vast array of prediction and opinion, the general consensus seems to be that we will have ‘to wait and see’.

Is it all Doom and Gloom? - An Interview with an Executive Chairman

It’s all over the news that business and consumer confidence is low and that Australia and other Western economies are heading for tough times. Money is tight, many business sales are falling and company directors are wondering what the outlook looks like for 2009.

We interviewed an Executive Chairman from a National Infrastructure Organisation to grasp an idea of how the current economic climate has affected the construction sector and what they foresee for 2009.

How has the current economic climate affected your Industry in Australia, and workload in general?
Yes we have been affected, private building is very weak but government building projects remain strong. In mining, top tier miners are still spending (albeit reduced) but second tier miners have stopped expansion. There is still a lot of money being spent in rail; the government sector in particular is very strong. Gas is also a strong industry with there being a number of schemes for liquefied natural gas in Western Australia, Queensland and Darwin. Other areas are going strong such as water treatment plants, recycling and the pipelines.

In regards to the areas of construction that you specialises in which areas have you found to be hit the hardest, and why?
The private building sector has been the hardest hit, which is made up of residential and commercial projects. The reason is finance related with banks changing both their cost of funds and their lending criteria to developers.

Where will you now be shifting your focus or what do you foresee as becoming your main area of interest?
We won’t change our focus too much; if we were purely a builder we would slow down, but because we are well diversified we will have enough to keep us going.

Do you think that the current economic climate will have a lasting effect on the construction industry and what do you foresee as being some of the long term ramifications for the industry as a whole, if any?
Project funding will become much harder to secure and will probably never revert to that of the past few years. You will need to have an fundamentally secured project to receive funding, meaning excellent fundamentals, high degree of pre sales and larger equity invested with less debt.. 2009 will start off very flat and probably wont get up and running until the first half of 2010 where more stimuli will come back into the economy.

In the Construction and Property sectors, salaries are considered considerably good, do you see them changing, staying the same or increasing? Why is this?
Building will most probably stagnate, infrastructure remuneration might continue to move upwards but it won’t increase at the rate it has in the past.

With the current state of the market, have you found that Gen Y employees are concerned or worried about their jobs?
This generation has never experienced a recession before. Many employers have been biding their time through the boom times and will now look to show the Gen Y’s that the boot is on the other foot. We are not like that. We love the vibrancy and diversity of the contribution from Gen Y’ers.

Do you still envisage a skill shortage in Australia, calling for offshore candidates or will you now focus more/only on local talent?
Research shows that by 2018 there will be more people leaving construction than entering into it. We must continue training and bringing on graduates – this is a critical part of our business model. We also appreciate the importance of continuing hiring graduates cadets and apprentices.

What are your predictions of your immediate workload moving into 2009?
We expect to remain slow to steady in 2009 – certainly slower than 2008.. In general, the building sector will suffer as private development has all but stopped. State and Federal governments are being responsible by investing heavily into infrastructure – the trick will be just how quickly they are able to get these projects off the ground.

How Important is Gen Y in the Workplace?

I recently read an article on the Sydney Morning Herald Website; http://smallbusiness.smh.com.au/managing/management/gen-y-in-the-firing-line-909289552.html which has stated that current employers are more likely to get rid of Generation Y employees first, compared to their elder aged staff.

This raises many questions about Generation Y and how we are perceived in the workplace.

Today’s current economic climate has the ability to be one of the worst downturns that the world has ever experienced and it is certainly one of the most volatile times for my Generation of workers, known as Generation Y!

As a Generation Y employee working in recruitment, I am often in a position where I will hear about the pro's and con's of workers closely aged to myself, 18 to 30 years old. We often hear from the media, management sources, elder members of the community and various other outlets that Generation Y are considered lazy employees who are only money driven and move around jobs way too much.

Whether you agree with this or not, I often see Generation Y employees that work and study extremely hard to achieve goals and meet expectations whilst really trying to be the best employee they can, so they can live as comfortably as generations of workers before us have.

So I ask the question, have Generation Y candidates in the Construction Industry been stereotyped as a bunch of cash greedy job hoppers or have we been given an easy ride to success with every opportunity to achieve?

Therefore, I thought I would take this topic of discussion to a professional in the Construction Industry, a General Manager from a National Mid Tier Organisation who has first hand experience employing Generation Y candidates and managing them on a daily basis.

1. How many Generation Y employees do you have at the moment and what type of positions do they fill?
We currently employee 12 Generation Y staff (considered 18yrs to 30yrs old) which consists of Contracts Administrators, a Contracts Managers, a couple of Foreman and Cadets.

2. What do you look for when you hire Gen Y candidates and what are your expectations? Do these expectations differ to any other Generation of workers?
I have the same expectations of my entire staff whether it’s Generation Y or Generation X. I look for younger employees that have the same work ethic as the older staff and have a bit of street wise about them. They must be a good cultural fit also.

3. Are Generation Y employees fulfilling your expectations in the workplace? Do they achieve set goals and targets?
Alot of Generation Y employee’s don’t set goals and need to be pushed. The work ethic is different between Generation Y and Generation X workers who get on with the job because they are used to working hard with longer hours. Gen Y will work longer hours but they need to pushed into doing it. Gen X would easily work a 60 plus hour week and wouldn’t leave until their job was finished, they would work 6 day weeks because working a Saturday was normal, younger employees will only work the odd Saturday.

4. How do you find the turnover of Generation Y staff? Do you find them loyal or do they move around too much?
They definitely move around too much, a lot of the younger employees are short sighted and are only chasing the money that is on offer. I think this current climate will change all that and most of these young workers should change their ideas.

5. In your opinion do you find that Gen Y candidates try and progress too quickly in the workplace?
Yes they do, it is common to see 24 and 25 years olds wondering why they are already not Project Managers. A lot of these candidates are straight out of University and want to become a Project Manager straight away. You would normally spend 4-5 years as a Cadet then move into Contracts Administration and then with at least ten years experience under your belt you would become a Project Manager.

6. Do you find that they are career driven or money driven or both?
I would say both, with money being the most important thing for most.

7. In your opinion what sort of positive skills / knowledge / experience can Gen Y bring to your company that Gen X fails to bring?
The biggest skill they can bring is their use of technology and getting the most out of software and systems. It comes naturally to a lot of younger employees with most Generation X workers struggling to get the most out of technology.

8. Considering the current state of the market, have you found that Gen Y employees are concerned or worried about their jobs?
I haven’t had too much feedback from my employees but we do keep them in the loop and updated as much as possible.

9. Do you think the volatile nature of the Construction Industry is off putting for junior candidates coming through the ranks?
It is really hard to say at the moment because a lot of industries are in a similar position. I think that in the Construction Industry we are very fortunate that we can offer very good money to younger workers and probably one of the only sectors that can afford this luxury. Its up to the young employees how much they want out of it, if they are prepared to work hard and apply themselves then they can find a very rewarding career in Construction.

10. If your company experiences a downturn, is Gen Y the first to go? If so Why?
No not necessarily, it is usually a combination of factors including loyalty and performance. If an employee has shown us over 10 years service which some of them have, and have performed quite well then we are going to be more likely to keep them on.

11. Looking into 2009, what type of employee bracket will you be looking to employee?
Quite hard to say at this stage however we will be looking to take on a real mixture of workers. In terms of Generation Y we normally take on a few cadets which is something we will continue, we would also like to take on some young site based people when the time is right, as previously we have had an ageing site team. It is important that the young employees don’t want to progress too quickly, not being a Project Manager within 1 or 2 years is not the be and end all.

12. What is your overall message / opinion about Generation Y in the workplace today?
I would say overall, Generation Y have un-realistic salary expectations in relation to their experience. There have been certain companies that have expanded too quickly in our industry and in some cases thrown younger employees too much cash for what they can do. I believe that the older workers are alot more realistic in our industry. They have often worked their way up, been through the hard times and will take less money even though they have better experience. If Gen Y comes out of university and after 1 or 2 years ask for a salary of $110K which I have noticed, then quite often they will be the first to leave during a downturn.

Please feel free to comment and provide your perspective on this continually debated topic.

Patrick Page
Construction Consultant
Conduit Recruitment

Review calls for 457 wage overhaul

The Federal Government has been told to overhaul the temporary skilled migration scheme to make the pay rates fairer.

Industrial Relations Commissioner Barbara Deegan has told the Federal Government to scrap the minimum salary system and replace it with market rates.

The Construction and Mining Union's (CFMEU) National Secretary, John Sutton, says the change would prevent the exploitation of 457 visa holders.
"That's something that's been clear to the unions all along. We've called on Government now for over three years to implement that and we feel vindicated that the commissioner is arguing that," he said.
"That's a bedrock concept. These workers must be paid the same as Australians who are doing the same work."
"It will take away a lot of the attractiveness of this scheme being a cheap labour scheme."
Immigration Minister Chris Evans agrees.

But Senator Evans says he is wary of the recommendation to give foreign workers Medicare coverage by charging an employer levy.
He says it would put an additional burden on the public health system.
The Government will consider the recommendations as part of next year's budget.

http://au.news.yahoo.com/a/-/latest/5144614/review-calls-for-457-wage-overhaul/

Glimmer of hope for builders as loans for new houses ticks up

I recently read an interesting article on the Master Builders Australia website - there is hope for the construction industry in sight!

Loans for ‘new’ dwellings moved higher in September in contrast to a further decline in loans for the purchase of established dwellings, according to peak building and construction industry organisation Master Builders Australia.

Mr Peter Jones, Master Builders’ Chief Economist, said “The steep decline in overall housing finance commitments over the past 12 months lends support to the Reserve Bank’s aggressive moves to bring down interest rates down by a full two percentage points in the past three months. “With the likelihood of more cuts to come over the next six months, the bold decision to bring rates sharply down coupled with additional government spending should bolster confidence and should put a floor under the market.”

“Encouragingly, the number of loans for ‘new’ dwellings moved higher in the month, following 12 consecutive monthly declines.”He said “A further period of uncertainty is likely over the remainder of the year as the full extent of the global financial crisis plays out and this means soft conditions in the housing market can be expected to prevail for another 6 to 9 months.” The total number of dwellings financed for owner occupiers, seasonally adjusted, fell by 2.7 per cent in September 2008, to be down 26.9 per cent on the same month last year.

The number of loans for ‘new’ dwellings (construction and new combined) was up by 2.4 per cent in September to be down 26.8 per cent on the same month last year.- the number of loans for the construction of dwellings rose by 2.0 per cent in September, to be 17.4 per cent down on the same month last year. - the number of loans for the purchase of new dwellings rose by 3.6 per cent in September, to be down 42.3 per cent on the same time last year.

The number of loans for the purchase of established dwellings fell by 3.3 per cent in September, to be down 27.0 per cent on the same time last year. The value of lending to finance the purchase of investment housing fell by 1.1 per cent in September, to be down 22.8 per cent on a year ago.

Dubai Cityscape Conference - A Vision of Tomorrow

A couple of consultants at Conduit along with myself recently attended the Dubai Cityscape Conference.

Cityscape Dubai 2008, in its 7th year, is the largest business-to-business real estate investment and development event in the world. Cityscape Dubai attracts regional and international investors, property developers, governmental and development authorities, leading architects, designers, consultants and all senior professionals involved in the property industry. It provides an annual forum that celebrates the very best in real estate, architecture, urban planning and design from around the world.

About 60,000 participants from over 150 countries had gathered in Dubai, to be a part of the world's largest development exhibition and its associated conferences, which is expected to break all previous records. About 40,000 visitors flocked the Cityscape Dubai during the first two days of the show, which exceeds a total of three days of crowd gathering during last year's event.

With the world facing market uncertainty, we enter a new era in which the Middle East developers are expected to maintain or even increase their presence across the world. The intensity and scale of the iconic projects, is one of the most impressive property booms in modern history that has kept the UAE and Dubai in particular, on focus worldwide for most of the decade.

However, a report by the property consultants Colliers International stated that Dubai prices would drop by 16 percent during second quarter of 2008, and will remain flat until 2010, which came as bad news just prior to opening of the seventh Cityscape Dubai.

On the whole, about $100bn worth of new projects were launched on the first day of Cityscape. However, this news failed to ignite investor confidence, as there were growing fears about the global credit crunch and the possible overheating of the local property market. Starting from Dh.350bn beachfront project to a kilometer-high tower, the developers at the annual Cityscape exhibition in Dubai launched the usual series of mega-developments, which has been responsible for boosting the Gulf Arab Commercial hub to international fame.

While the Dubai mortgage lender Tamweel, announced plans to launch about Dh.2bn worth of Islamic bonds in 2009, the Sorouh Real Estate of Abu Dhabi announced that all its projects have been proceeding on track.

It is evident after attending Cityscape that we began to think about whether the large scale projects exhibited at the conference will actually be built. Although the shopping malls and apartment complexes look great now, when they are completed in 10 years time they will look dated. There was alot of talk surrounding Dubai and whether places such as Abu Dhabi will in fact produce bigger and better developments in the years to come.

It will be interesting to see as to whether other countries in the Middle East overtake Dubai with the grandeur and large scale of their developments. One thing is for sure that the Dubai Cityscape Conference will continue to be the largest property exhibition in the world attracting tens of thousands from all over the globe.

Credit crunch to hit the building industry

It is clear that the current economic crisis is affecting numerous industries, including the building sector.

An article in The Age yesterday discussed the industry’s concerns.

The construction industry faces job losses due to a downturn in activity caused by the global economic crisis, builders have warned.

Projects from small apartment developments to big commercial jobs have been put on hold amid investor concerns and tightening credit.

The downturn could be a setback for the State Government's controversial plan to encourage more Melburnians to live in flats around transport and retail hubs.

Master Builders Association of Victoria executive director Brian Welch said yesterday many projects had been stopped in the early stages and others cancelled.

"Investors are looking around and asking if they really wish to take a plunge at this point - this will send a shudder through the industry," he said.

"There is a prospect there will be industry layoffs and a downturn in work in the new year."
The Housing Industry Association, which represents home builders, said the crisis was hitting apartment projects.

"It ranges from 20-unit to 200-unit developments," HIA acting state director Robert Harding said.

"The larger the development, and the more money that needs to be put up, the tougher it's getting."

Mr Harding said this could hurt the Government's Melbourne 2030 urban plan, which centres on apartments.

Mr Welch said unions should consider more flexible work practices on big commercial projects to help ease the pressure during the economic crisis.