Townsville North Queensland Economic Snapshot – September 2018

MAJOR SPONSOR

TOWNSVILLE NORTH QUEENSLANDQUARTERLY ECONOMIC SNAPSHOT

SEPTEMBER 2018

MAJOR SPONSOR

2

MAJOR SPONSOR

The Townsville North Queensland Economic Snapshot provides a regional economic outlook and commentary with key quarterly statistics including unemployment, business confidence, property sales and building approvals.

The snapshot also provides insight into a major regional development, with a focus on opportunities for regional businesses. This edition reviews the Port of Townsville Expansion Project.

TOWNSVILLE NORTH QUEENSLANDQUARTERLY ECONOMIC SNAPSHOT SEPTEMBER 2018

1.1 Regional Outlook

The Townsville North Queensland economy continued its steady path to recovery over the past three months. While business confidence is fragile, it remains in positive territory for the second consecutive quarter. Although the residential property sector remains at the bottom of the cycle, there are increasing indications of a tightening rental market and renewed buyer interest.

There is increasing interest in industry consolidation and diversification towards areas such as horticulture, oilseeds, grains and pulses which currently have a strong demand profile. However, a reduction in sugar prices alongside long term consumption concerns, could potentially impact the outlook for sugarcane growing regions such as Hinchinbrook and the Burdekin.

Improved prospects for the regional mining industry provides confidence for a return to sustainable growth. Major projects including Dugald River Zinc and Capricorn Copper in the North West Minerals Province have moved to production. A revised Adani Carmichael project has been announced, with changes aimed at streamlining the Carmichael project by connecting a rail network into the existing Aurizon line.

The regional economy is expected to recover over the coming years, however the pace and scale of recovery will be contingent on securing major projects currently under consideration. These include a $2 billion lithium-ion battery plant located at Woodstock (currently subject to a feasibility study), State 2 of the Haughton Pipeline Duplication, and agricultural expansion at Hells Gates Dam near Charters Towers.

OUTLOOK FOR TOWNSVILLE NORTH QUEENSLAND

Townsville North Queensland Economic Snapshot – September 2018

2

MAJOR SPONSOR

3

MAJOR SPONSOR

1.2 Key Macroeconomic Trends

Key US economic indicators including Gross Domestic Product (GDP) (4.2% annualised during 2017–18) and unemployment (3.9% in August) remain very robust, with the Federal Reserve expected to continue steadily lift interest rates over the coming months.

However, rising trade tensions between the US and China present significant risks to the macroeconomic outlook, including the US decision to place 10% tariffs on a further $200 billion worth of Chinese imports. The severity and implications of a more protectionist US are not yet fully understood, with over three-quarters of Australian exports to China (e.g. iron ore, LNG) consumed domestically rather than on-sold to the US. In the short term, the trade tensions have largely impacted the Australian dollar, which has recently fallen to 0.71 USD.

Within Australia, the economy is currently growing at a robust rate of 3.1% annualised on the back of higher commodity prices. However, limited wages growth and concerns that the previously booming Sydney and Melbourne property markets are beginning to cool present looming risks for the Australian economy. Tighter lending regulations and a recent out of cycle interest rate increase from three of the four big banks (in response to higher international funding costs) has the potential to place further downward pressure on capital city property markets.

Townsville North Queensland Economic Snapshot – September 2018

3

MAJOR SPONSOR

2.1 Labour Market

The Townsville North Queensland unemployment rate has reduced from a peak of 11.3% in March 2017 to 8.5% in March 2018, with an additional 11,600 jobs created over the 12 month period. Despite this improvement, the labour market remains in a weakened state relative to Queensland, and it will take time before the regional labour market fully recovers.

The labour force has risen strongly over recent months, by almost 10,000 persons to approximately 116,500 in March 2018, as improved employment prospects entice job seekers to re-enter the labour market. Ongoing job growth will be required to absorb this additional labour force capacity and enable the unemployment rate to return to levels more in line with the Queensland average (currently 6.0%).

KEY QUARTERLY INDICATORS

Figure 2.1: Townsville North Queensland Labour Market Source: QGSO (2018)

MAJOR SPONSOR

Townsville North Queensland Economic Snapshot – September 2018

4

Figure 2.2.1: Property Market Indicators Source: REIQ 2018

Figure 2.2.2: Median Property Prices – Rental Source: REIQ 2018

Townsville Burdekin Charters Towers Hinchinbrook

3 Bedroom Houses

$290.00/week12 month change (1.8%)

$255.00/week12 month change (4.9%)

$250.00/week12 month change (0.0%)

$250.00/week12 month change (0.0%)

2 Bedroom Units

$248.00/week12 month change (3.3%)

$220.00/week12 month change (10.0%)

$200.00/week12 month change (-2.4%)

$180.00/week12 month change (6.5%)

$315,000

-3.3%Annual change

$165,000

HOUSES

BURDEKIN

VACANT LAND

UNITS$157,000

2.3%Annual change

$260,000

7.7%Annual change

-5.7%Annual change

$182,500HINCHINBROOK

-8.8%Annual change

All properties represented above are less than 2,400m2

REGIONAL ANNUAL MEDIAN HOUSE SALE PRICES

TOWNSVILLE QUARTERLY MEDIAN PROPERTY SALE PRICES

$150,000CHARTERS TOWERS

-9.1%Annual change

2.2 Property

The residential property market remains soft, with reported increases in buyer interest yet to translate to firmer sale prices. The rental market has continued its steady recovery, with lower vacancy rates beginning to flow through to modest growth in rents for both houses and units (see Table 2.1).

A tighter rental market is expected to flow through to further buyer interest over the coming months. However, the recent out of RBA cycle interest rate increase has the potential to stall the sector’s recovery.

Residential building approval activity is down by 22.5% from 12 months ago at just 694 dwelling units approved. Residential approval levels continue to run at less than half of the estimated 1,700 dwellings per annum required to support projected regional population growth. The value of residential approvals also declined significantly from 12 months ago at a value of $236.9 million.

In stark contrast, non-residential construction activity continues to be strong, up by nearly 50% from a year ago. Non-residential construction has been a major driver of the regional economy in recent times, however a sustained turnaround in residential construction is required to support economic recovery and ongoing industry growth.

MAJOR SPONSOR

Townsville North Queensland Economic Snapshot – September 2018

5

Table 2.2.3: Building Approvals Source: QGSO (2018)

Indicator No. Dwelling Units

Residential Building Value ($'M)

Non-Residential Building Value ($'M)

Townsville North Queensland 12 Months to July 2018 694 $236.9 $481.8

Townsville North Queensland 12 Month % Change -22.5% -15.9% 47.2%

Queensland 12 Month % Change 2.2% 1.6% -10.1%

2.3 BusinessConfidence

Business confidence remains in a fragile state, falling by 8.4 points in the September quarter after a 12.4 point increase in June. It should be noted that despite the most recent fall, confidence remains in positive territory across both small and large businesses.

The continuing fragility demonstrates that business owners remain cautious following years of challenging trading conditions and uncertainty regarding the global economic and national political environment. Businesses are also looking for certainty regarding proposed major regional projects to facilitate a return to investment and expansion.

Source: PVW Partners (2018)

Figure 2.3.1: Business Confidence Change Index – Townsville

MAJOR SPONSOR

Townsville North Queensland Economic Snapshot – September 2018

6

2.4 Tourism

MAJOR SPONSOR

Townsville Airport Passenger Numbers Sep 2016 to Aug 2017 Sep 2017 to Aug 2018

Annual Aircraft Seats 2,413,298 2,454,648

Annual Seat Growth 1.7% 41,350

Annual Passengers 1,578,125 1,660,964

Annual Passenger Growth 5.2% 82,839

Townsville North Queensland Economic Snapshot – September 2018

7

MAJOR SPONSOR

Townsville Accommodation Numbers Sep 2016 to Aug 2017 Sep 2017 to Aug 2018

Average % Occupancy 61.7% 65.5%

Annual Occupancy Growth 3.8%

Average Daily Rate (ADR) $127.47/day $131.19/day

Annual ADR Growth 2.9% $3.72/day

Average Revenue Per available room (RevPar) $80.02/day $86.79/day

Annual RevPar Growth 8.5% $6.77/day

Passenger growth has maintained at Townsville Airport, with an increase of over 80,00 passengers between 2017 and 2018, despite the loss of some connections. This demonstrates that demand for Townsville as a destination is sustained, with continued positive demand assisting in the attraction of additional direct flights. Furthermore, the establishment of the proposed North Queensland Export Distribution Centre will provide further opportunities to attract new airlines and air routes to the region (under belly cargo).

The hotel industry has experienced demand and occupancy growth off the back of increased visitation into Townsville. Annual growth for revenue per available room was strong, at over 8.0%. The month of July peaked during the most recent quarter, which can be attributed to school holidays coinciding with the Townsville Show, 2018 Watpac Supercars, and the Townsville North Queensland Bid Fund supporting the 2018 Basketball Queensland Under 14 Boys Championships.

RevPAR is a measure of both room rates and occupancy. RevPar provides a convenient snapshot of how well a company is filling its rooms, as well as how much it is able to charge.

Townsville North Queensland Economic Snapshot – September 2018

8

MAJOR SPONSOR

Factor Specifications

Capital Expenditure $193M

Status Approved

Timing Under Construction

The Port of Townsville is the largest container and automotive port in Northern Australia and supplies a population of nearly 800,000 people in North Queensland, supporting more than 8,000 jobs. The Port of Townsville is Australia’s largest exporter of copper, zinc and lead from the North West Minerals Province and sugar from the Burdekin district. The port is also Australia’s second largest export port for live cattle, with over 200,000 head per annum supplied predominantly to Asian markets.

The Port of Townsville Channel Capacity Upgrade Project will provide the safest, most cost effective and environmentally sustainable solution for meeting the freight requirements of North Queensland.

Over the last 40 years ship sizes have grown significantly and are continuing to grow. This is impacting the Port’s competitiveness and ability to attract larger ships that have no choice but to bypass Townsville to pick up and drop off freight for North Queensland. Larger cruise lines are also unable to visit the area despite strong interest being registered.

The project secured the final $75M funding commitment in September bringing the $193M channel widening project to financial closure. Total funding is made up of $75M from the Federal Government, $75M from the Queensland Government and $43M from the Port.

The Channel Capacity Upgrade will be developed over six years and involves widening the existing channels from the current 92 metre width to 180 metres at the harbour entrance, tapering to 120 metres at the sea channel entrance.

The Project is essential to facilitate the projected growth of trade in the region and is critical to ensuring the Port remains competitive in the long term. The key benefits of the project include:

Provision of essential trade pathways - Increase the size of container ships accessing Townsville from 2,500 TEU to 5,800 TEU ships Support tourism growth – Cruise ships carrying >3,000 passengers will have access (previously 1,500) Support strategic Defence capability by improving navigational safety for vessels Move freight off the roads - reducing carbon emissions Transport savings – transit time savings of freight of approximately 17 hours per leg Road safety – remove up to 8,230 B-Double trucks per year of road highways between Brisbane and Townsville

The direct economic benefits presented by the Project include: $580M of total value to the regional economy (during construction and operation) Aggregated benefit over 40 years of $380M including cost-benefit ratio of 2.90 120 FTE Jobs during construction

KEY PROJECT: PORT OF TOWNSVILLE CHANNEL CAPACITY UPGRADE

MAJOR SPONSOR

Townsville North Queensland Economic Snapshot – September 2018

9

Disclaimer: Whilst all care and diligence has been exercised in the preparation of this report, AEC Group Pty Ltd does not warrant the accuracy of the information contained within and accepts no liability for any loss or damage that may be suffered as a result of reliance on this information, whether or not there has been any error, omission or negligence on the part of AEC Group Pty Ltd or their employees. Any forecasts or projections used in the analysis can be affected by a number of unforeseen variables, and as such no warranty is given that a particular set of results will in fact be achieved.

Townsville Enterprise LimitedEnterprise House6 The Strand, TownsvilleQueensland, 4810 Australia

Phone: +61 7 4726 2728Fax: +61 7 4726 2700Email: tel@tel.com.auWeb: www.townsvilleenterprise.com.au

The Townsville North Queensland Quarterly Economic Snapshot is a joint initiative of Townsville Enterprise and AEC Group Limited.

MAJOR SPONSOR

Townsville North Queensland Economic Snapshot – September 2018

10