Non-residential building capex: offices, hotels hold the fort

Offices and hotels across Australia contributed to historically high levels of investment in 2018-19.

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Major non-residential building project investment surged to over $A10 billion in 2018-19 with more than half spent on offices, while hotels added over $A1 billion to annual capital expenditure (capex). 

" According to the latest ANZ-Property Council Survey, confidence in the non-residential property market is down across most sectors compared with this time last year."

Although the backlog of work in offices and short-term accommodation has come off its peak, it is still historically high with much of it concentrated in Melbourne and Sydney. This will drive activity, supported by new projects, although the latter tend to be on a smaller scale.


In the current low-rate environment, ANZ Research has seen solid capital inflows for Australian property from both domestic and overseas sources. Commercial property yields are around record lows, but they still offer an attractive risk premium on government bonds.

As long as the Australian economy is in reasonable shape, property demand should be resilient, supporting the pipeline of works.

There are, though, material risks to the outlook.

Business conditions have deteriorated to five-year lows, and business confidence has also slumped. Geopolitical and trade uncertainty, weakness in the household sector and credit constraints appear to be depressing business investment as firms take a ‘wait and see’ position.

According to the latest ANZ-Property Council Survey, confidence in the non-residential property market is down across most sectors compared with this time last year.

Construction activity expectations for the year ahead remain solid for the office and tourism sectors.

However, bricks and mortar retail investment faces challenges, particularly slower household spending growth and rising online retailing and international competition.

ANZ Research’s Australian Major Projects report looks at current and future spending on major projects in the infrastructure, resources, non-residential building industries and more. Keep an eye out for future articles detailing these trends on bluenotes.

Catherine Birch is Senior Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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