Services Sector Drives Australian Capital Expenditure: Implications for the Property Sector

The expectations of an immediate, large drop in Capital Expenditure level over the next few years have been reviewed. In its most recent look into actual and expected capital expenditure, the ABS has reported a similar level of expenditure in 2013-14 as in the record holding 2012-13, and forecast a less than 5% drop in capital expenditure out to 2015. This is a result of two factors; firstly, in line with field research done by Macroplan, significant portions of investment in the resources sector are running late – that is to say that they were planned for earlier expenditure cycles, but are now planned in future periods, having the effect of lowering levels of observed capital expenditure in the current period and increasing expected expenditure in future periods. Figure 1 Total Actual and Expected Capital Expenditure, Australia

Total Actual and Expected Capital Expenditure

Source: ABS Cat. 5625.0 SEP 2014

Secondly, the gap between previous and current capital expenditure in the resources and related sectors is currently being filled by a sharp increase in expenditure in the ABS’ ‘other selected industries’ category, which is almost entirely made up of services sectors, with the primary members including the finance, professional and technical services, education, tourism, freight and logistics and health and ageing sectors.

Figure 2 Other Selected Industries, Actual Capital Expenditure, Australia

Other Selected Industries Actual Capital Expenditure                           Source: ABS Cat. 5625.0 SEP 2014

Whether this second factor continues to play a major role and whether resource capital expenditure remain at their currently impressive levels remains to be seen. The current low interest rate environment could continue to drive this sector in line with RBA forecasts which suggests that non mining activity is likely to grow above trend – at a rate above 3% per annum – by 2016.

Figure 3 Non-mining Activity, Year-ended growth, Australia 2014

                                    Non mining Activity Year ended growth

In the event that the RBA is correct and the services sector continues to invest a wide range of service sector related property impacts are likely, including growth in retail floorspace, hotels/ accommodation, health infrastructure and education infrastructure.

About MacroPlan: MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Brian Haratsis, Executive Chairman today to discuss your property research requirements.

Brian Haratsis MacroPlan’s Executive Chairman is an economist and future strategist who has more than 30 years’ experience in providing detailed advice to governments and major corporate clients throughout Australia.E: P: 03 9600 0500