Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB

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Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB
SUPPORTING THE SOUTH AUSTRALIAN
           BUILDING AND CONSTRUCTION
           INDUSTRY AND WORKFORCE.

Economic Update
March 2020
Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB
Disclaimer
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Published 6 April 2020
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Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB
Contents

OVERVIEW				Positive Indicators						                                                              01
					       Negative Indicators						                                                              01

IMPACT ON THE ECONOMY AND		     COMMSEC — Economic Insights COVID-19: Making
ON BUILDING AND CONSTRUCTION OF sense of the economic impact, 30 March 2020			                    02
COVID-19 — SUMMARY OF REPORTS   Deloitte Business Outlook March Quarter 2020 (national data only) 02
					Cordell Construction Monthly, March 2020			03
					                           Deloitte Weekly Wrap (March 25)				                               03
					                           Core Logic						                                                  03
					                           McKell Logic						                                                03
					Grattan Institute						03
					Goldman Sachs						04
					Sourceable						04
					Property Council						04
					                           ANZ Research — Blue Lens, 17 March 2020			                        04
					                           Westpac Bulletin, 18 March 2020				                               05

SUMMARY OF THE POLICY RESPONSES         The Guardian 31 March 2020					                            05
AUSTRALIAN AND SOUTH AUSTRALIAN
GOVERNMENTS AS AT 31 MARCH 2020

BUILDING AND CONSTRUCTION		 Summary of ABS Indicators					06
INDICATORS			               ABS Building Approvals — February 2020			                       06
					Other Commentary on Building and Construction Indicators		                             07
						Australian Securities and Investments Commission —
						                               Companies Entering External Administration by Industry 07
						                               Savills Research — Quarter Time National Office,
						                               Q4/2019						                                          08
						                               Savills Research — Quarter Time National Retail,
						                               Q4/2019						                                          08
						                               Cordell Construction Monthly, March 2020		             09

EMPLOYMENT AND UNEMPLOYMENT ABS Labour Force — February 2020, Cat. No. 6202.0		                    09
				                        ABS Labour Force Australia Employment by Industry,
					                       February quarter 2020					                                             10
					Vacancy Report — February 2020, Australian Government		                                       11
					                       South Australian Centre for Economic Studies (SACES)
					                       Data Wrap 20 March 2020					                                           11

POPULATION			                           ABS Australian Demographic Statistics, Cat. No. 3101.0		   11

COMMENTARY ON GENERAL			                ABS Retail Trade — January 2020, ABS Cat. No. 8501.0		     12
ECONOMIC CONDITIONS			                  Savills Research — Quarter Time National Office,
(VARIOUS ANALYSIS)			                   Q4/2019							                                             12
Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB
Overview
•   Since the February update, the world has been in the midst
    of the COVID-19 pandemic, which aside from being a health
    emergency, has also led to significant economic upheaval.
    Unfortunately published economic data is backward looking
    and in many cases relates to conditions at the end of 2019.
•   Therefore it will take at least a few months to get accurate
    data on the impact of the virus on the broader economy
    and building and construction in particular; and on how
    economic stimulus measures are helping to provide a buffer.
•   What is clear is that even before the pandemic,
    conditions in South Australia’s economy and building
    and construction sector were quite soft. For example,
    building approvals are trending downwards for both
    residential and non-residential and pre COVID-19 forecasts
    suggest a continuation of subdued conditions.

Positive Indicators
•   Economic stimulus measures from the Australian and
    South Australian Governments in response to COVID-19
    provide some support for employers of apprentices
    and the bringing forward of infrastructure projects.
•   Population growth (as at the September quarter 2019)
    showed a relatively strong result for South Australia.
    However, the travel restrictions likely for much of 2020 are
    likely to significantly limit net overseas migration gains.

Negative Indicators
•   Like many other sectors, the building and
    construction sector is likely to be adversely affected
    by the economic impact of COVID-19.
•   Employment fell in South Australia in the year to February
    2020, even before the impact of COVID-19.
•   Most indicators of building and construction activity were
    already trending down in South Australia prior to March.

1
Economic Update March 2020 - SUPPORTING THE SOUTH AUSTRALIAN BUILDING AND CONSTRUCTION INDUSTRY AND WORKFORCE - CITB
Impact on the Economy and on Building and
Construction of COVID-19 — Summary of Reports
Note: these reports have been prepared at various stages in the           Deloitte Business Outlook March Quarter 2020
past few weeks, and most prior to the Australian Government’s             (national data only)
Jobs Keeper funding package.
                                                                          •   Residential construction was experiencing a pretty nasty
                                                                              cyclical downturn through 2019 and early 2020, which could
CommSec - Economic Insights COVID-19: Making                                  now turn into a freefall as coronavirus wreaks havoc with
sense of the economic impact, 30 March 2020                                   particular types of projects. With the outlook for residential
                                                                              property prices suddenly much more uncertain, the incentive
•   At this stage, clearly it is near impossible to make accurate
                                                                              for additional building activity is very low. Building construction
    predictions. Much depends on how quickly the number of
                                                                              is also heavily reliant on equipment and materials, meaning
    COVID-19 cases can be controlled. Also much depends on how
                                                                              that supply chain disruptions are another area for concern.
    quickly treatments and a vaccine can be found for the virus.
                                                                          •   The incredibly uncertain environment could put a halt to
•   These are extraordinary times with no exact precedent.
                                                                              current large scale projects and delay future ones. With
    · The best approach to forecasting is shown by the
                                                                              building approvals already low, and unlikely to improve
    International Monetary Fund, expressing in general
                                                                              anytime soon, there won’t be any improvement this year.
    terms the likelihood of a global recession in 2020
    but not speculating on the size of the fall.                          •   Commercial construction has been a different story to
                                                                              residential, with growth in many of its major sectors. But
•   Australia is also at risk of recession. But it is important
                                                                              commercial construction is very reliant on discretionary
    to note that the Reserve Bank and Federal, State
                                                                              decisions with respect to its timing. If management and
    and Territory governments are providing massive
                                                                              boards are fearful, and if credit is hard to come by, that says
    support for the economy and financial markets.
                                                                              commercial construction will undergo a notable downturn.
•   The economic impact of COVID-19 is also quite variable across             The probability of major construction projects being
    businesses and sectors. Travel, recreation and hospitality                greenlight in the near future remains low, as businesses
    businesses have been most affected. But supermarkets,                     reassess the viability of current and future projects.
    electrical goods stores, some transport businesses and
                                                                          •   Engineering construction comprises a large part of the
    sporting goods retailers have noted firmer demand. And
                                                                              overall construction market with mixed performance
    infrastructure construction has been little affected.
                                                                              recently. Private sector investment has been falling
•   Notably, in past recessions caused by an external shock                   as large and long-term LNG projects wrap up the
    (such as 1975 due to the oil price shock), the Australian                 construction phase and move to production. Offsetting
    economy has bounced back quickly. But again, much                         this has been the large-scale public sector investment,
    depends on how quickly the virus can be contained.                        mostly into long-term transport infrastructure.

•   In the current period, the national jobless rate stands               •   The incredibly high uncertainty permeating through the
    at a near 8-year low of 5.1 per cent. As the downturn                     economy does not bode well for engineering construction,
    has been caused by an external ‘shock’ the jobless rate                   particularly private sector construction which is generally
    will likely rise more quickly. A raft of retail, hospitality,             more responsive to worsening economic conditions.
    arts and recreation staff have been stood down.                           While the public sector pipeline remains large, a key
                                                                              question is the extent to which state governments are
•   However, job creation is occurring in supermarkets,
                                                                              willing to speed up the pipeline of their works.
    grocery stores, some health businesses
    and delivery/courier businesses.
                                                                          Chart 1: Construction Output and GDP (national data)
•   While unemployment will likely lift quickly to record levels, the                     Construction (change on year earlier)
    government has lifted cash payments to prevent broader job
    losses. It is anticipated that jobless rates will fall quickly when
    the virus is contained and businesses are allowed to re-open.

                                                                          SOURCE: DELOITTE ACCESS ECONOMICS

                                                                                                                                                2
Cordell Construction Monthly, March 2020                              •   Neither Australia nor the world has ever before dealt with
                                                                          a problem that gets four times worse every week, so
•   The non-residential sector has a mixed degree of exposure to          speed of action is vital – especially in health preparedness,
    the economic fallout related to coronavirus. With job losses          with a decision taken today four times as effective as
    expected to surpass 800,000 individuals and unemployment              the exact same decision taken in a week’s time.
    likely to rise to around 11% by June, we could see a negative
    impact on sectors of commercial real estate, especially
    in those segments hard hit by the virus, which include            Core Logic
    hospitality, education, tourism and some sectors of retail.
                                                                      •   The largest and most direct industry shocks
•   Additionally, with many businesses moving to a work from home         from the coronavirus are expected in:
    arrangement, office vacancies are likely to temporarily soar.
                                                                      •   tourism, where increasingly strict quarantine
•   It’s not all bad news for commercial real estate and                  procedures deter travel;
    the peripheral industries. There have been reports of
                                                                      •   education, due to fewer foreign students being able to travel;
    strong retail sales for bulky items such as computer and
    electronic equipment, office furniture and white goods.           •   hospitality, where social distancing leads to a
                                                                          decline in café, bar and restaurant visitation;
•   Additionally, with an expected surge in hope
    shopping and delivery services, the warehousing                   •   retail, which will be dragged down by low
    sector is likely to see a rise in demand.                             consumer confidence levels; and,
                                                                      •     arts and recreation, where visitation to theatres , cinemas and
•   Additionally, healthcare and medical sectors are already
                                                                            art galleries are already on the decline.
    under strain and likely to remain in high demand.
                                                                      Unlike the global financial crisis, where a mining boom, as well as
                                                                      monetary and fiscal policy were effective in helping Australia avoid
Deloitte - Weekly Wrap – 25 March 2020                                recession, the domestic economy now faces new challenges:
•   The world is clearly in new territory in responding
    to the global pandemic of COVID-19. Dr Ira Kalish,
                                                                      McKell Institute - Initial assessment of the impact of a
    Deloitte’s Chief Global Economist notes:
                                                                      COVID-19 induced economic downturn on NSW and
•   “The number of COVID-19 cases has soared outside of China         Australian workers
    and will likely do so again in the coming weeks. The result
    has been a different global economy. Economic activity            •   3.7 million working Australians have no access to paid leave.
    is declining rapidly. Consumers are staying at home and           •   1.86 million workers in Australia are employed in five sectors
    businesses are shutting their doors. Unemployment is rising           immediately impacted by the downturn: accommodation
    sharply, key industries face massive disruption and likely            and food services, retail trades (excl. food retailing), creative
    bankruptcies, and central banks have cut interest rates and           and performing arts, sports and recreation, and airlines.
    injected liquidity on a scale rarely seen before. Asset and           While workers in these fields are immediately impacted,
    commodity prices have fallen sharply. Risk spreads have               the economic ramifications will be felt economy wide.
    increased, threatening to cause credit markets to seize up”.
                                                                      •   57.8 per cent of workers in industries identified
•   In Australia, our normal way of life is changing rapidly with         as most immediately impacted are female.
    the forced closure of all places of social gathering, and it is
    likely that even more restrictive measures are still to come.     •   There is a risk that the unemployed in the 55-64 year bracket
                                                                          will be forced into early retirement should job searches
•   The short-term economic impact will be profound. We will              extend for durations greater than those evident during the
    get confirmation in the coming weeks of the scale of distress,        GFC. It is important that Governments consider methods
    but the overwhelming demand we saw for Centrelink services            of incentivising employers to retain these workers
    earlier this week tells the story of where this is heading.

•   But, as unprecedented as the size and speed of the response       Grattan Institute
    to date from the authorities has been, it isn’t enough: numbers
    of people with the virus mounting by a factor of four times       •   No matter how much money governments throw at the
    every week, and business and job stress further building              economy, most businesses cannot survive the absence
    by the day. So, this is still far from the end of the story in        of normal activity for more than a few months.
    terms of federal government support. Measures to date             •   It is not just tourism and hospitality. Companies small
    have focused on smaller business, but jobs at our well-run,           and large across sectors from household services to
    larger businesses are also at risk. These jobs are equally            manufacturing to construction, are developing and
    important, not least because larger organisations, if they            executing plans to sack hundreds of thousands of people.
    remain somewhat intact, will be better placed to turbo-charge
    the economic recovery once the virus passes.                      •   Unemployment will soar, probably driving a sharp fall
                                                                          in house prices, causing big problems for banks.

3
Goldman Sachs                                                          •   On consumer spending, Hunter sees
                                                                           a ‘very big negative shock’.
•   Given the rapid deterioration in the Australian economic
    outlook as the coronavirus causes the closure of                   •   More encouragingly, Hunter says prospects are brighter
    borders and restrictions on movement, Goldman Sachs                    toward the latter half of the year and into 2021.
    Group Inc. now forecast the sharpest annual GDP
                                                                       •   Worldwide, she says infections are expected to
    contraction since the great depression of the 1920s.
                                                                           peak at around May to June – albeit with Australia
•   The Australian economy will shrink 6% in 2020 versus                   facing greater difficulty as winter approaches.
    last year, economists led by Andrew Boak wrote in a
                                                                       •   With that in mind, Hunter says the economy is likely to return to
    report dated March 20, 2020. Most of the contraction is
                                                                           very subdued levels of growth in the third quarter followed
    expected to be driven by a collapse in ‘social’ consumption,
                                                                           by quarterly year-on-year growth rates of five percent or
    with an assumption that spending at hotels, cafes and
                                                                           greater in the final quarter and extending into early 2021.
    restaurants will fall more than half, while spending on many
    discretionary categories will drop by up to one third.             This will be supported by government efforts worldwide
                                                                       to restart economic momentum. “We are going into the
•   As the economy contracts, unemployment will rise to
                                                                       worst in terms of disruption and dislocation,” Hunter said.
    8.5%, the Goldman economists estimate, from 5.1% in
                                                                       “But we will come out the other side we would expect
    February. The possibility that some workers leave the
                                                                       by the end of this year and things will get better.”
    labour market while some businesses cut back hours, but
    retain staff, make the jobless rate tough to estimate.
                                                                       Property Council
Sourceable                                                             •   At this stage, we anticipate that economic activity will
                                                                           recover in the second half of the year and that the rise in
A recession in Australia during the first half of this
                                                                           new cases will peak before the end of June. Obviously,
year is inevitable, a leading economist says.
                                                                           there are a lot of risks around this forecast as the situation
•   BIS Oxford Economics Chief Australia Economist Sarah                   is still evolving. If the peak in infections gets pushed out
    Hunter declared that it was no longer plausible to expect that         to the third quarter, we will see a deeper downturn”
    Australia could avoid a recession in the first half of this year
    brought about by dislocation associated with COVID-19.
                                                                       ANZ Research - Blue Lens, 17 March 2020
“Given the size of the dislocation that we are looking at,
                                                                       Source: ANZ Live
we now think that even with the government’s stimulus
package announced last week and the support that this                  •   We would discourage too much focus on potential recovery
will provide, we don’t think it is going to be possible for                until the full dimensions of the unfolding slowdown become
the economy to avoid a recession,” Hunter said.                            clearer. We probably aren’t yet through the epicentre, and
                                                                           managing through that should be the focus for most.
•   According to Hunter, the economy will contract by
    around 0.5 percentage points in the March quarter                  •   The reality is economic policy simply cannot offset the
    amid a loss of income from students and tourism                        demand loss that comes from widespread economic
    along with the hangover from the bushfires.                            shutdowns. Economic policy can only partially offset some of
                                                                           the impact, hopefully forestall the cascading impact through
•   In the second quarter, she said precise forecasts are difficult
                                                                           the financial weak points in each economy, and try and limit
    as the impact depends on the extent of any lockdowns.
                                                                           the structural damage the economy might suffer that would
•   Nevertheless, Hunter said prospects for this quarter are ‘very         limit its ability to recover from the crisis when that comes.
    negative’ notwithstanding government stimulus measures.
                                                                       •   It’s the logistical response which is needed to slow the
•   According to Hunter, the fallout from the virus globally and           spread of the virus, and the medical response which
    in Australia will come both from supply chain disruption               will create the foundation for recovery. We have really
    and lower demand from both business and consumers.                     only just started to see the economic impact of the
                                                                           choices governments are making in these areas.
•   On the former point, she says supply chains are being
    affected by the disruption of activity in China.                   •   If the objective of shutdowns and social distancing is to slow
                                                                           the spread of the virus such that hospital systems are not
•   Regarding demand, Hunter said the virus will affect
                                                                           overwhelmed, they could be in place for months and quarters,
    both business investment and consumer spending.
                                                                           rather than just weeks. Economic activity, therefore, is likely to
•   BIS expects private sector investment to drop by around five to        stay subdued for some time.
    six percent nationally in both 2019/20 and 2021 as investment
    plummets in machinery and equipment and continues to be
    negative in both housing and non-residential investment.

                                                                                                                                                4
Westpac Bulletin, 18 March 2020                                     •   Economic growth through 2020 is now estimated at 1.5%
                                                                        with minus 1% in the first half and 2.5% in the second half.
•   New changes resulting from COVID-19 has
    meant that Westpac has revised down its                         •   The national unemployment rate is now forecast to reach
    economic forecasts from last week.                                  7% by October 2020 (up from the previous estimate of
                                                                        5.8%-6.0%) due to the larger negative shocks to the labour
•   Not surprisingly, as these events have moved quickly, Westpac       intensive sectors such as recreation; tourism; education;
    has made some major changes to its estimates of the impact          renovations and additions; and dwelling construction.
    of COVID-19 in both the March quarter and the June quarter.
                                                                    •   This lift in the unemployment rate is despite reducing the
•   It has increased its estimate of the shock to the most              participation rate from 66.1% to 65.4% as a discouraged
    exposed component of consumer spending (hotels;                     worker effect – that is, as workers respond to a deteriorating
    restaurants and cafes; recreational services; and air travel)       labour market the participation rate is likely to decline.
    to minus 40% over the two quarters from minus 25%.
                                                                    •   These forecasts are not based on Australia
•   Westpac has increased the expected shock to consumer                following a European style full lock down. Not
    durables to minus 7% and revised up the negative                    surprisingly, the forecasts are subject to downward
    impact on home renovations and additions.                           revision in the event of such an occurrence.
•   Outbound and inbound tourism is expected to
    contract by 80% over the two quarters.

•   Overall consumer spending is forecast to contract
    by 0.1% (March quarter) and 2.8% (June quarter)
    before recovering by 1.9% in the September
    quarter and 1.0% in the December quarter.

Summary of Policy Responses Australian and South Australian
Governments as at 31 March 2020
The Guardian 31 March 2020                                          •   22 March – government announces a second major
                                                                        economic rescue package worth $66bn including a
•   Measures total $213.6bn from the commonwealth, $11.8bn              $550 coronavirus supplement to jobseeker payments
    from the states and $105bn in RBA-government lending                and a second $750 payment to welfare recipients.
•   The $130bn support package announced by the Morrison            •   30 March – government announces $130bn in the third
    government on Monday is the largest plank in a raft                 support package, including a $1,500 fortnightly jobkeeper
    of measures to keep Australians in jobs and support                 payment for employers to pass on to employees to keep them
    those out of work, unprecedented in its scale.                      in work, and extending eligibility for jobseeker payments.
•   Every state and territory has announced stimulus packages
    that, along with the impact of COVID-19-related closures
                                                                    South Australian Government
    on their revenue, are expected to put them all in deficit.
                                                                    •   11 March – government announces a $350m package
•   By the end of March, the measures announced totalled
                                                                        to bring forward infrastructure spending and start new
    $213.6bn in direct, on-budget spending from the federal
                                                                        projects in road maintenance, housing, tourism and health.
    government, $11.8bn from the states and $105bn in lending
    from the Reserve Bank and the federal government.               •   26 March – government announces a second package worth
                                                                        $650m, including $300m for businesses and industries
                                                                        and $250m for community organisations and training.
Federal government
                                                                    •   This spending will be guided by an Industry
•   12 March – government announces a $17.6bn stimulus                  Response and Recovery Council.
    package including $4.76bn for $750 payments to
    welfare recipients and $6.7bn for businesses for                Note the latest data is often a few months old and the
    wage subsidies (mainly to retain apprentices).                  data and commentary below relates to pre-COVID-19
                                                                    period and needs to be seen in that context.
•   19 March – the Reserve Bank of Australia announces a
    $90bn three-year funding facility to help banks continue
    to lend to business, and the Morrison government
    contributes $15bn skewed to smaller banks and non-
    authorised deposit-taking institution lenders.

5
Building and Construction Indicators

Summary of ABS Indicators: South Australia

 Monthly data (trend)                                                               Latest month          Compared to           Compared to a
                                                                                                        previous month            year earlier

 Dwelling approvals (February 2020)                                                              922              -2.6%                  3.0%

 •       Private houses                                                                          681               0.0%                 -0.7%

 •       Private ‘other’ dwellings                                                               214              -8.9%                  7.5%
 Quarterly data                                                                    Latest quarter          Compared to          Compared to a
                                                                                                        previous quarter          year earlier

 Dwelling commencements (Sep qtr 2019, seas. adj.)                                              2,470              1.9%                 -8.8%

 Construction work done (Dec qtr 2019, chain vol. seas. adj.)                                   $2.8b             -5.4%                 -9.0%

 •       Residential                                                                            $0.8b              1.5%                 -6.6%

 •       Non-Residential                                                                        $0.6b             -5.8%                 -4.3%

 •       Engineering                                                                            $1.4b             -9.1%                -12.3%

 Construction work in the pipeline (Jun qtr 2019, original)                                     $6.5b              2.2%                -26.3%

 •       Residential                                                                            $2.7b              2.4%                 -2.5%

 •       Non-Residential                                                                        $2.4b             -1.6%                -14.2%

 •       Engineering                                                                            $1.4b             -9.3%                -57.7%

 Construction industry employment (Year to Feb qtr 2020)                                   73,928                      na                3.7%

SOURCE: ABS DATA, VARIOUS PUBLICATIONS

ABS Building Approvals - February 2020, Cat. No. 8731.0                          Table 1: Trend Dwelling Approvals by State
data - Analysis by CITB
                                                                                                                               Feb 20 v Feb 19
•       The total number of dwelling approvals in South Australia in
                                                                                                                                   (% change)
        February 2020 was 3.0% higher than a year ago. Conversely,
        nationally, the number of dwelling approvals was 2.5% lower               NSW                                       -19.4
        than a year ago.
                                                                                  VIC                                       +21.9
•       The number of private sector houses approved for
                                                                                  QLD                                       -3.5
        construction in South Australia was unchanged during
        February but was 0.7% lower than a year ago.                              SA                                        +3.0

•       Private ‘other’ dwelling approvals in South Australia fell by             WA                                        -18.2
        8.9% in February but were 7.5% above their level of a year                TAS                                       -12.9
        ago.
                                                                                  AUS                                       --2.5
                                                                                 SOURCE: ABS BUILDING APPROVALS DATA
 South Australia Monthly data                       Latest     Compared
 (trend)                                            Month       to a year
                                                                  earlier
 Dwelling approvals (February 2020)                   922           +3.0%
    - Private houses                                  681           -0.7%
    - Private ‘other’ dwellings1                      214           +7.5%
 Non-residential building approvals              $139.2m           -13.6%
SOURCE: ABS BUILDING APPROVALS DATA

1
    Other’ dwellings includes semi-detached, town houses, units, and multi-storey apartments.

                                                                                                                                                 6
Chart 2: Total Number of Dwelling Approvals                               Chart 3: South Australian Non-Residential
Per Month                                                                 Buildings Approved $M per month

                                                                          SOURCE: ABS BUILDING APPROVALS DATA

SOURCE: ABS BUILDING APPROVALS DATA

•    During February, the value of non-residential building approvals
     fell by 14.1% in South Australia and by 13.6% through the year.

Other Commentary on Building and Construction Indicators

Australian Securities and Investments Commission (ASIC) – Companies Entering External Administration by Industry

Source: ASIC

•     The table below summarises the data for construction in South Australia, by comparing it to all industries in South Australia and to
      construction nationally. Insolvencies in construction were actually lower in 2018-19 than in 2017-18 and are well below the number
      in 2013-14. On average, the construction sector makes up around 16% of all insolvencies in South Australia, which is well above its
      employment or Gross State Product share (around 8%).

Table 2: Companies Entering External Administration

                                   Construction       All industries     Construction                       SA % of Aus
                                                                                          % of SA total
                                            SA                   SA             Aust                        construction

    2013-14                      64                393                  1802            16.3%             3.6%

    2014-15                      47                362                  1591            13.0%             3.0%
    2015-16                      55                386                  1647            14.2%             3.3%
    2016-17                      39                311                  1509            12.5%             2.6%
    2017-18                      57                341                  1354            16.7%             4.2%
    2018-19                      52                347                  1515            15.0%             3.4%
    Jul-Jan YTD                  29                179                  1016            16.2%             2.9%
SOURCE: ASIC

7
Savills Research – Quarter Time National Office,                   •    The Walker Corporation development at Festival Plaza and
Q4 2019                                                                 the Cbus development at 73-85 Pirie Street Adelaide are
                                                                        likely to be the next buildings to come out of the ground with
Source: Savills                                                         2 active lease requirements from the State Government and
• The Defence, Information Technology, Education and                    Commonwealth DHS likely to trigger a new office project.
  Mining sectors expansion is helping to keep demand
  for quality office space healthy in South Australia.             The table below summarises some of the major upcoming and
                                                                   planned office development projects in the Adelaide CBD.

SOURCE: SAVILLS RESEARCH, CORDELLS; UC = UNDER CONSTRUCTION, DA = DEVELOPMENT APPROVED, PS = PLANS SUBMITTED

Savills Research – Quarter Time National Office,                    •   The future development pipeline will now be somewhat
Q4 2019                                                                 questionable as to whether they commence, as Coles
                                                                        and Woolworths had been forced into upgrades of sites in
Source: Savills                                                         response to Kaufland’s entry into the Adelaide market.
• There had been a surge in development approvals
  in the 2nd half of 2019 as a result of Kaufland’s                 •   Savills Research expect developers to remain
  then expansionary strategy. News in late January                      cautious and disciplined until conditions recover.
  that Kaufland will exit Australia has resulted in the
  cancelation of all their development projects.

SOURCE: SAVILLS RESEARCH, CORDELLS; UC = UNDER CONSTRUCTION, DA = DEVELOPMENT APPROVED, EP = EARLY PLANNING, LF = LARGE
FORMAT; NH = NEIGHBOURHOOD; PS = PLANS SUBMITTED; SR = SUB REGIONAL; MU = MIXED USE

                                                                                                                                         8
Cordell Construction Monthly, March 2020                           •   A consortium comprising CPB Contractors, Aurecon and
                                                                       GHD has been awarded the tender to deliver three major
•   Planning for numerous school upgrades is underway                  projects under the Port Wakefield to Port Augusta Regional
    in preparation for the Year 7 to high school initiative,           Projects Alliance (RPA). The three projects are the Port
    whereby Year 7 public school students will be taught in            Wakefield Overpass and Highway Duplication, the Joy
    high school from term 1, 2022. A development application           Baluch AM Bridge Duplication and the Augusta Highway
    has been submitted for a $32 million upgrade of Unley high         planning project between Port Augusta and Port Wakefield.
    School. Works are scheduled for completion before 2022
    prior to the commencement of Year 7s at the school.            •   Tenders have been invited for main works for the $149
                                                                       million Yatala Labour Prison which will contain 270
•   Tenders have been invited for Hallett Cove School.                 high security beds. Early works comprising car park,
    Transportable buildings will be removed, some with asbestos,       business centre and staff training and wellbeing centre
    and replaced with contemporary facilities, refurbishment           are being carried out by Sarah Constructions, and are
    of existing learning areas, including specialised learning         due for completion towards the end of the year.
    areas for science, technology, engineering and maths.

Employment and Unemployment

ABS Labour Force Australia, February 2020 – Cat. No.                   Chart 4: Unemployment Rates (%)
6202.0 (analysis from Department of Treasury and
Finance)
•   During February, the unemployment rate:
    was 5.8% in South Australia in both trend and
    seasonally adjusted terms (5.1% nationally).

•   South Australia has the highest
    unemployment rate of all the states.

•   Through the year trend employment growth was down
    0.2% for South Australia but up 1.9% nationally.

•   South Australia’s labour force participation rate has
    fallen by 0.8 percentage points over the past year,
    compared to a rise nationally of 0.3 percentage points.

                                                                       SOURCE: CHART REPRODUCED FROM DEPARTMENT OF TREASURY
                                                                       AND FINANCE, ECONOMIC BRIEFS.

                                                                   •   Underemployed workers are those who are employed part-
                                                                       time and who want (and are available for more hours of work
                                                                       than they currently have. The trend underemployment rate in
                                                                       South Australia was 9.8% in February. As a result, the overall
                                                                       trend labour force underutilisation rate was 15.6% in February,
                                                                       up from 14.8% a year earlier (nationally the rate is 13.7%).

9
ABS Labour Force Australia Employment by Industry,
         February quarter 2020 – Cat. No. 6291.0.55.003
         (analysis from CITB)
         •               The remarkable rise in employment in South Australia’s
                         construction sector (20% over 5 years), appears to
                         have peaked as at the year to February 2020 and can
                         be expected to decline as the impact of COVID-19
                         takes hold – see Charts 8,9 and 10 below

        Chart 5: Workforce SplitsSplits
                      Workforce   Construction   Industry
                                        Construction       — South
                                                     Industry,       Australia
                                                               South Australia
                                 35.0
                                 30.0              Workforce Splits Construction Industry, South Australia
                           25.0
                       35.0
                           20.0
                       30.0
       000s

                           15.0
                       25.0
                           10.0
                       20.0
                            5.0
000s

                       15.0
                            0.0
                       10.0
                           5.0
                           0.0
                                                                               Housing                         Commercial                             Civil

                                  Share of Total Construction
                                                      Housing
                                                              Employment    - South Australia
                                                                    Commercial        Civil

                                 50.0%
         Chart 6: Share of Total Construction Employment — South Australia
           Share
            40.0% of Total Construction Employment - South Australia
                    % of total

                    50.0%
                        30.0%

                    40.0%
                        20.0%
       % of total

                    30.0%
                        10.0%

                    20.0%0.0%

                    10.0%

                        0.0%
                                                                                        Housing              Commercial                  Civil

                                                                               Housing                 Commercial               Civil

        Chart 7: Total Employment — Construction South Australia
                          Total Employment - Construction South Australia
                                   80.0
                                   70.0
                                   60.0
                                   50.0
                                   40.0
        000s

                                   30.0
                                   20.0
                                   10.0
                                    0.0
                                          Feb-88

                                                    Feb-90

                                                             Feb-92

                                                                      Feb-94

                                                                               Feb-96

                                                                                           Feb-98

                                                                                                    Feb-00

                                                                                                              Feb-02

                                                                                                                       Feb-04

                                                                                                                                Feb-06

                                                                                                                                             Feb-08

                                                                                                                                                        Feb-10

                                                                                                                                                                 Feb-12

                                                                                                                                                                          Feb-14

                                                                                                                                                                                   Feb-16

                                                                                                                                                                                            Feb-18

                                                                                                                                                                                                     Feb-20

        •              Compared to 5 years ago, construction employment in
                       South Australia has increased by 13,200 (22%).

                                                                                                                                                                                                              10
Vacancy Report – February 2020, Australian
Government Department of Employment, Skills,
                                                                      Population
Small and Family Business
Source: Australian Government                                         Analysis by Department of Treasury and Finance
•    The COVID-19 pandemic is likely to have an effect                •   During the year to September 2019, South Australia’s
     on recruitment activity, however, the impacts                        Estimated Resident Population (ERP) increased 0.9%
     are not evident in the February 2020 Internet                        (or 15,400 persons) to 1,756,494 people. Nationally,
     Vacancy Index data covered by this release.                          the ERP increased 1.5% to 25,464,116 people.
•    Nationally, the Internet Vacancy Index (IVI) fell slightly by    •   Population growth over the year by jurisdiction, from
     0.27% in February 2020. The IVI is 9.0% (or 16,100 job               highest to lowest was: Victoria (2.0%), Queensland
     advertisements) below the level recorded a year ago.                 (1.7%), ACT (1.5%), New South Wales (1.3%), the
•    South Australia experienced a decrease of                            Western Australia (1.1%), Tasmania (1.0%), South
     3.1% in vacancies over the past year.                                Australia (0.9%) and the Northern Territory (-0.6%).

Chart 8: IVI Annual Change, by State/Territory (%)                    Chart 9: Annual Population Growth

South Australian Centre for Economic Studies
(SACES) – Data Wrap March 2020
•    Labour market conditions in South Australia remained             SOURCE: CHART REPRODUCED FROM DEPARTMENT OF TREASURY
     relatively stable in February in the face of major               AND FINANCE, ECONOMIC BRIEFS.
     headwinds in the form of the coronavirus outbreak
     and lingering effects of the summer bushfires.

•    As we have noted in our previous analysis of labour
     market data, unemployment has recently fallen in South
     Australia in response to people leaving the labour
     force. This ‘discouraged worker’ effect continued
     in February with the labour force participation rate
     falling by 0.1 percentage points to 62.3 per cent.

•    The deterioration in labour force participation has been quite
     pronounced over the past year with the participation rate
     falling by 0.8 percentage points. This decline contributed
     to a small fall in the state’s unemployment rate over the
     past 12 months (down 0.2 percentage points) even though
     total employment levels actually fell slightly over this
     period (down 0.2 per cent). And with employment levels
     failing to grow let alone keep pace with population growth,
     underemployment in South Australia has risen significantly
     over the past year, by 1.0 percentage points to 9.8 per cent.

11
Commentary on General Economic Conditions

ABS Retail Trade Data – January 2020, ABS Cat. No.                  •   Easing monetary policy is not yet having its desired impact. It
8501.0 (analysis by Department of Treasury and                          appears the RBA cannot do this alone, and there are growing
Finance)                                                                calls for greater government intervention via infrastructure
                                                                        spending into regional and metropolitan areas, as well as
                                                                        personal income tax cuts reform to encourage spending.
Chart 10: Through Year Growth in Real Retail Turnover –
Trend                                                               •   The unintended consequence of the resulting low for longer
                                                                        interest rate environment, is that investors (domestic and
                                                                        international) are aggressively chasing income producing
                                                                        assets, particularly property assets with strong lease
                                                                        covenants. In addition, investors continue to seek assets
                                                                        with future development and value add potential.

SOURCE: CHART REPRODUCED FROM DEPARTMENT OF TREASURY
AND FINANCE, ECONOMIC BRIEFS.

•   Compared with a year earlier, nominal retail turnover was
    1.2% higher in South Australia and 2.3% higher nationally.

Savills Research – Quarter Time National Office, Q4
2019
•   The Australian economy remains defined by continued
    low inflation at 1.8%, a stubborn unemployment rate of
    5.2% and a worryingly high underemployment rate of 8.6%,
    resulting in an underachieving GDP growth rate of 1.7%.

•   As such business and consumer sentiment remains weak,
    with business investment below trend. With this back
    drop (one that is similar to other western economies),
    the Reserve Bank of Australia has continued to pump
    prime the economy with lower interest rates, easing
    again on 1 October 25bp to an all-time low of 0.75%.

•   2019’s easing in Monetary Policy are arguably yet to be fully
    felt through the economy, but it’s clear the RBA is trying to
    kick-start activity to address an underachieving economy.

                                                                                                                                          12
THE FUTURE IS YOURS TO BUILD

                               13
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