The electrical services industry is the largest of the building and construction contracting trades, accounting for approximately one-seventh of the gross product, revenue and employment in the construction trade services sector. Industry activities span across all building, infrastructure and industrial markets.
Services provided include the installation of new electrical, electronic, communications and industrial equipment; the installation of wiring and cabling; and the repair and maintenance of existing electrical equipment and fixtures.
The industry currently generates revenue totalling $10.7 billion, including value added of $5.35 billion or approximately 0.5% of Australia’s GDP in 2010-11. Over the past five years, revenue has grown by an average 4.2% per annum, significantly exceeding the pace of GDP growth (2.9% per annum) due to the generally buoyant conditions in the housing and institutional building markets and boosted by work resulting from the emergence of new technologies (particularly broadband communications cabling). The industry is highly regulated and licensing requirements restrict entry of Australian firms into most foreign markets, therefore industry export earnings are negligible and hence the size of the domestic market equates with industry revenue.
Industry employment totals approximately 60,000 persons in 25,000 establishments in 2010-11. Half the firms are non-employer establishments, principally sole proprietors that may act as an independent contractor or as a subcontractor. The industry is comprised of many small-scale operators employing on average four to five people per establishment, including working proprietors and partners. The four largest enterprises together generate less than 20% of annual industry revenue, and the major players include Norfolk Group, Downer EDI, UGL Limited, Transfield Services, Hastie Group and Stowe Australia.
The industry is forecast to maintain solid cyclical growth over the next five years, supported by the return to buoyant demand conditions in downstream building markets, market expansion through the adoption of new technologies, and ongoing contractual maintenance work. Industry revenue is forecast to expand by an average 3.0% per annum over the five years through 2015-16, lagging behind the projected cyclical recovery in Australia’s GDP growth (3.8% per annum), and underpinned by growth by 2.2% per annum in the value of total building construction. Annual industry revenue is forecast to average $11.62 billion per annum over the five years through 2015-16, or 16% above the average of $10.03 billion per annum over the previous five years through 2010-11.
The industry’s performance will also be supported by the broadening of markets through technological developments and the ongoing trend towards firms entering into long-term facilities management contracts. The large-scale contracting firms, which employ economies of scale and product diversity to contest the facility management market, are likely to take an increasing share of the contract electrical maintenance market and leave the household maintenance and small building installation market to the smaller local players.
Continual advances in technological developments of electrical and electronic equipment will provide the basis for steady industry expansion over the next five years. Market expansion through emerging technologies is forecast to incrementally add 0.5% per annum to industry revenue growth over the next five years. Key areas of growth in industry demand include installing networking systems for electronic data transfer in existing premises; installing and maintaining premises surveillance instrumentation; and installing telephony, broadband and pay-TV services.
Within the non-residential building market, the value of construction is projected to rebound from a cyclical trough, growing by 5.4% per annum over the next five years through 2015-16, supporting strong demand for the installation of electrical equipment and wiring in offices, hotels, factories and other business premises. Electrical contract maintenance revenue on commercial, institutional, and industrial property will grow by about 2.5% per annum over the next five years.
Within the housing market, the demand for electrical contractor services will be supported by the projected cyclical upswing in the value of total residential construction and the number of housing commencements by 4.5% to 5.0% per annum over the next five years.
Demand for electrical services in the engineering infrastructure market is likely to average subdued cyclical growth of 0.4% per annum over the five years through 2015-16. However, this market will remain at near-record levels of construction and provide a substantial platform for contractors servicing the resources, energy, telecommunications and electricity infrastructure markets.
Companies are gearing up to be able to handle work for the public electricity, transport and communication networks, which involve the installation and handling of high-voltage equipment and specialised electronic systems.
A trend that has emerged in the industry has been the marketing of repair and installation trade services by key regional providers of electricity, gas and water. In the future, organisations marketing electrical contracting services may emerge as key players in the industry.
The industry is also likely to see the emergence of more large-scale contractors providing multi-disciplined facilities management services (i.e. maintenance of plumbing, electrical, mechanical and air-conditioning assets). This development would correspond with trends in the United States and the United Kingdom, which have seen facility management firms contract across all market segments and enter into long-term arrangements with large-scale commercial and industrial clients to deliver services across regional and national markets.
Improved profit margins in the housing market (notably installation of residential appliances and wiring activity on new houses) will support a stronger profit performance over the next five years and help offset the intensely competitive conditions prevailing in the non-housing construction markets. Industry gross operating surplus (i.e. operating profit), is forecast to climb by an average 5.0% per annum over the five years through 2015-16, with the profitability strongest for the small housing-oriented contractors, and the large-scale electrical firms, which exploit their capacity to offer specialised services to newly emerging markets (e.g. in tele-data services and in the privatised public utilities market).
The improved profit performance will support growth in industry value added by 4.0% per annum over the next five years, ranging as a share of revenue between 49.5% and 51.5%. Industry wage costs are forecast to maintain solid growth by 3.5% per annum over the next five years, underpinned by employment growth of 1.5% per annum and increased real unit labour rates. Overall, material and labour input prices are expected to remain contained as the current recessionary cycle moderates inflationary pressures.
Continued cyclical growth in demand should be evident early in the five-year period, stemming principally from solid investment into new housing construction, and the cyclical recovery in the commercial and industrial building markets as domestic demand conditions improve. The recovery in the building markets will underpin industry revenue growth by about 4.0% in 2011-12 and a further 2.0% to $11.35 billion in 2012-13, with employment climbing by 2,000 people or 1.0% to 2.0% per annum to reach 62,000 persons in 25,250 establishments.
Investment into housing construction, lifting the number of commencements to a record 181,300 units by 2012-13, will generate stronger revenue for contractors concentrating on the installation of appliances and wiring services. The improved construction in the commercial and industrial building market will be focused on office and retail store construction which will generate strong demand for the installation of communications cabling (e.g. broadband cable connection), and the installation of electrical machinery and control equipment. Institutional building construction will contract sharply in the absence of the one-off stimulus spending on school refurbishment.
The cyclical contraction in the value of new housing construction towards the middle of the outlook period as high interest rates and easing population pressures, dampened demand for new installation of fittings and appliances, although household maintenance and repair work will help stabilise revenue for the smaller contractors. Investment into the non-building infrastructure market is expected to correct through the middle of the period with investment slowing in the electrical power generation and telecommunications markets and declining significantly in the mining, roads and railways markets. This will affect the demand for installation activity in these markets, affecting mainly the large industrial contracting companies, although ongoing facilities management contracts will stabilise revenue flow.
The continued cyclical expansion in the commercial building market during this period will generate solid demand for appliance and communications installation services and wiring and help cushion the decline in other construction markets and ensure the industry maintains modest revenue growth by 0.9% to total $11.45 billion in 2013-14.
The industry’s performance is projected to strengthen towards the end of the five years through 2015-16, corresponding with the cyclical recovery in the total non-residential building market and the resurgence of private-sector investment into the non-building construction and industrial capacity.
The housing market is forecast to rebound late in the five-year period as investment reaches a new cyclical growth phase. The value of non-residential building construction is projected to maintain growth of 2.5% to 3.5% per annum late in the five-year period, with continued strong growth in the commercial building market and a minor cyclical recovery in the institutional building market. Following the contraction in the demand for installation and wiring activities on non-building construction projects during the middle of the period, there will be moderate upswing in activity in the electricity infrastructure and heavy industrial construction markets.
Industry revenue is forecast to climb by 2.6% in 2014-15 and a further 5.5% to reach a record $12.4 billion in 2015-16, or 16% above the current level. Industry employment is forecast to climb to a record 63,000 people in 25,600 establishments by the end of the five-year period, representing growth of 1.0% per annum or 3,000 people. Employment is expected to lag behind the pace of industry revenue growth due to a shift across to long-term maintenance and facility management contracts, which should enable the large firms to obtain productive efficiencies.
Robert Bryant is the general manager of business information firm IBISWorld.
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