Tuesday, January 18

A solid recovery is anticipated in civil construction


There is hope for a solid recovery in civil construction if the government can go ahead with its ambitious plans to invest in large-scale civil projects and incentivize the private sector, says construction market intelligence firm Industry Insight.

However, Industry Insight said the non-residential construction segment is expected to come under increased pressure over the next 12 to 18 months due to large cuts in public sector spending and a severe lack of demand for buildings. commercials with excess supply.

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Furthermore, there has been no evidence of a sustainable rebound in investment in the residential housing market this year and the data for this segment has been much worse than expected, Industry Insight said in its latest Industry Forecast Report from la Construcción de SA.

The civil construction industry appears to be emerging from the ashes and has finally reached a tipping point “from absolute lows,” he said.

Warnings

“This statement, however, comes with several caveats as the strong bidding activity we are seeing is not exactly translating into contracts awarded at the rate we would like, with extremely disappointing data so far this year.”

Industry Insight said that a host of issues also remain around the government’s ability to deliver on promised investment in large-scale infrastructure.

“We are much more optimistic about the short-term future of civil construction, although the indicators of current civil construction activity have been much worse than expected. This may mean that the growth we were forecasting will lag a bit, ”he said.

In July 2020, the government unveiled 50 strategic infrastructure projects and 12 special projects, involving a total investment of R340 billion, as the first tranche of a massive infrastructure spending program to boost the subsequent economic recovery effort. to Covid-19.

In October 2021, it unveiled the second tranche of projects, comprising a portfolio of 55 new catalytic infrastructure projects from various sectors valued at approximately R595 billion.

Read:

First recovery infrastructure projects published after a pandemic
The government presents a portfolio of R595bn of new infrastructure projects

Industry Insight said that bidding activity has increased significantly, especially since January, and has risen by nearly 30% in the first eight months of this year compared to the same period in 2020, and the number of projects to be tendered now has returned to approximately 2016. levels after years of depressed tender activity.

He said that bid values ​​have continued to improve solidly over the past three quarters and there has been a 53% growth in the average value of civil projects going out to bid, which “is excellent.”

Optimism vs data

Civil engineers are also getting more optimistic with the latest state of the industry report from the SA Civil Engineering Contractors Forum (Safcec) revealing that the number of respondents satisfied with business conditions rose to 47.1% in the second quarter of 2021.

Read: Confidence in civil construction improves marginally

However, Industry Insight emphasized that it is quite clear from their data, as well as Databuild data, the gross fixed capital formation data published by Statistics SA, and the opinions of the Safcec report, that “current activity levels They haven’t started to get much better at all yet. ”

“In fact, based on data from the Databuild / Industry Insight project, civil construction activity is actually lower than the same period in 2020, which should be a bit of concern given that this period included the months of strict lockdown in The ones that the industry wasn’t even allowed to be on the site.

“Specifically, there has been a 28.2% decrease in the real value of civil tenders awarded so far in 2021 compared to the same period last year.

“This is a pretty solid decline and we just don’t see the data from the awarded contracts follow the big uptick in bids taking place in the industry,” he said.

Both Master Builders South Africa (MBSA) and Safcec have complained for several years about delays in the award of tenders and public sector contracts.

Industry Insight said that about 80% of civil projects are funded by the public sector, which has made infrastructure spending estimates one of the best indicators for future civil construction activity.

But he said government finances remain in an absolute state and “to our dismay” overall infrastructure spending was slashed again in this year’s budget after all the promises from President Cyril Ramaphosa about incoming “massive infrastructure spending.” and increasing rhetoric around making infrastructure spending the key component of the government’s economic recovery and stimulus plans going forward.

Read: Infrastructure is a Key Part of the Economic Recovery Plan – Ramaphosa

He said that general allocations were reduced from R815 billion last year to just R791.2 billion this year for the next three years of the Medium Term Expenditure Framework (MTEF) period, which is equivalent to a decrease of 7.2%. in real terms about the MTEF. period.

“Unfortunately, this will have a negative impact on the medium to long-term prospects for civil construction,” he said.

The non-residential sector is among the most affected

Industry Insight said the non-residential sector has been one of the hardest hit in the economy, with demand for both office space and shopping centers at record lows.

“It has been a perfect storm for office space, as the pandemic has allowed companies to experiment with their staff working from home, many companies … continue to allow their employees to work from home, and there is simply less need for offices. bigger, and there are clear signs that this segment is in big trouble, with a structural change and a permanent loss of production, “he said.

Read:

“And with the current state of the economy, consumers simply have less money to spend at the malls.”

Ghost offices

The latest SA Property Owners Association (Sapoa) Office Vacancy Survey report for the third quarter of 2021 revealed that South Africa’s office vacancy rate reached a “record high” at the end of September, with approximately 15 , 4% of the country’s office-owned space. now standing vacant.

More than 2.91 million square meters of the nearly 18.9 million square meters of office space in South Africa’s major metropolitan centers of greater Johannesburg, Tshwane / Pretoria, Cape Town, Durban / eThekwini and Nelson Mandela Bay are currently vacant, which equates to more than the office space of the central CBDs of Johannesburg and Cape Town combined.

FNB’s latest survey of commercial property brokers reinforces this, with 72% of respondents reporting that “supply far exceeds demand” for office space.

Industry Insight said official figures show a revised 20.1% annual decline in investment in non-residential industry in 2020, the worst figure on record, and that the recovery will sadly be much more limited than that of civil construction. . industry.

Construction activity

Data from Statistics SA shows that there was a record 33.7% contraction in the square meters of office space completed in 2020, which was followed by a 60.9% decrease in the first seven months of this year with a average of only 15,000m2 reported as completed in this period.

Industry Insight said there will be no major recovery in either office space or retail segments, and Statistics SA’s data on square meters of approved construction plans, a leading indicator of construction in progress, shows only a 17.2 increase. % in retail and a 9.2% increase in office space approvals from a low base.

There has only been a 1.9% increase in the number of non-residential projects being tendered so far in 2021, which “does not inspire hope for the future,” he said.

Industry Insight said that the residential construction industry contracted 1% on average in the five years leading up to 2020 and, while there has been a strong rebound in the number of square meters completed, it is nowhere near pre-Covid recessive levels. -19.

A total of 775,000 m2 was completed in 2019, but only 480,000 m2 was reported as completed in the last 12 months, while approvals to date in 2021 are more than 7% lower than for the same period in 2019.


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