Contractors in the landscaping services industry tackle a large range of projects, from humble backyard makeovers to roadside parks and public botanical gardens. The industry often competes for market share with DIY home owners, other special construction trades (eg. site preparation firms) and the Gardening Services industry.
Landscaping activities undertaken by this industry include laying feature paving, brick, slate, cobblestones or rocks; and installing watering systems, sprinklers, ponds, pools and drainage and irrigation systems. Additional activities include laying turf and instant lawns, seeding lawns, positioning sleepers, and laying scoria, gravel, pine bark and other mulch.
Industry participants also have a hand in arranging spa- and pool-scapes, which are landscape gardening activities.
The industry is forecast to generate revenue totalling $2.9 billion in 2011-12, with value added of $1.6 billion, or 0.1% of Australia’s GDP. Industry revenue is expected to decline by 0.5% during 2011-12, and to average modest cyclical growth by 1.5% per annum over the past five years. This performance lags well behind the pace of GDP growth (2.9% per annum). The industry’s performance has been contained by the subdued trends in spending by the household sector on landscaping services, but will be supported by strong demand conditions in the non-housing construction markets, and on institutional building projects (notably schools and hospitals).
The pace of industry expansion is forecast to rebound over the next few years as stronger economic growth conditions support spending by households and the business sector.
The industry will derive some stimulus from reconstruction activity in Queensland and northern Victoria in the aftermath of the devastating floods of early 2011 and Cyclone Yasi.
Industry revenue is forecast to climb by an average 3.1% per annum over the five years through 2016-17 to reach $3.37 billion. The industry will lag marginally behind the expected pace of GDP growth (3.4% per annum) due to divergent trends in the downstream building and infrastructure markets.
Over the longer term, this industry has benefited from improved public appreciation of professional landscape design and installation services. Concurrently, the nature of industry activities has changed in response to the prolonged drought conditions across Australia. The drought heralded a focus on the installation of drought-tolerant lawns and plants, rock or stone gardens, the laying of artificial grass in household gardens and the installation of greywater systems.
In 2011-12, industry employment is expected to total 31,500 people in 15,000 establishments. The number of industry participants has remained fairly stable since June 2009, when the industry comprised 5,833 employer establishments and 9,129 small-scale non-employer firms (i.e. sole proprietors and partners). The industry is characterised by its many small and geographically dispersed contracting firms, and has a particularly low concentration of ownership, with the four largest firms contributing less than 5.5% of annual industry revenue.
Landscaping contractors will benefit from the anticipated short-term upswing in new housing and commercial building investment, although demand conditions will diminish in several infrastructure markets and in the educational building market (notably public sector projects). Demand for industry services will continue to be supported by the upward trend in household expenditure on landscaped features in gardens and courtyards, as home owners seek to add value to properties and to extend their outdoor living areas.
Industry revenue is forecast to grow by an average 3.1% per annum over the five years through 2016-17, lagging behind the pace of Australia’s GDP growth (3.4% per annum). This performance corresponds with projected cyclical expansion in the downstream building markets, as the value of new housing construction rebounds to grow by 4.0% per annum over the next five years. There will be moderate growth in the total non-residential building market (2.0% per annum) as the collapse of investment into school construction offsets the resurgence of business investment into offices and other commercial buildings. The value of commercial and industrial building construction is projected to climb by 5.3% per annum over the next five years, while the institutional building market will shrink by 2.6% per annum due to the sharp decline in educational building construction (10% per annum).
Annual industry revenue is forecast to average $3.24 billion per annum over the next five years, or 12% above the average over the five years through 2011-12 ($2.89 billion per annum).
Industry profitability is forecast to maintain strong cyclical growth, despite some volatility in the longer term. Industry gross operating surplus (i.e. operating profit) is forecast to grow by 5.5% per annum over the five years through 2016-17, climbing to a 17% share of industry revenue, up from about 15% currently. This profit performance will support growth of 3.5% per annum in value added, which will rise to about 56% of revenue in 2016-17. Wage costs are projected to grow by 2.5% per annum, reflecting growth of 1.5% per annum in industry employment to 34,000 people by 2016-17, along with increases in real unit wage rates and hours worked.
Competition remains quite open for this industry, and relatively small organisations can generally tender competitively even on the largest of development projects, though some landscaping contractors have long-standing arrangements with regional or national developers. Developers are the price-setters and landscape gardeners the price-takers, particularly in recessionary conditions. The major distinguishing feature between landscaping contractors is expertise, rather than price. Landscape activities are often perceived as a fringe aspect or an add-on to total building development. This contains profit margins, as project developers can easily postpone or halt the landscaping component of a project, but they are unable to halt partly completed projects.
Demand conditions are forecast to improve due to a cyclical upswing in the housing construction market in the near term. However, much of this expansion will concentrate on the lower value first home buyers market and the apartment market, which typically have lower landscaping components of construction. Growth in housing demand is expected to be highest in Western Australia, driven by resource-induced economic growth. Growth will also be high in southern Queensland because of reconstruction activity in the aftermath of the 2011 floods.
Investment trends in the infrastructure markets will remain buoyant in the near term, with continued record levels of activity in the road construction market. The cyclical upswing by 8.0% to 10% per annum in the commercial building market will help offset the falling demand for landscaping services in the institutional building market over the next two years due to the winding back of the national refurbishment of primary schools.
Industry revenue is forecast to increase by 4.5% to 5.0% per annum over the next two years to reach $3.18 billion in 2013-14. This performance will correspond with the growth by 8.0% to 9.0% per annum in the value of new housing construction and commensurate growth in housing commencements to 172,000 dwelling units. Industry employment will grow by 1,500 people over the two years to about 33,000 people in 15,250 establishments.
Solid conditions prevail
Landscaping contractors are likely to maintain solid cyclical growth through the next five years, despite the expected correction in housing investment late in the period and weaker investment in the infrastructure markets from 2014-15. Industry revenue is forecast to climb by 3.5% in 2014-15 and to maintain solid growth by 1.0% to 1.5% per annum over the subsequent two years to reach a record $3.37 billion in 2016-17, with employment climbing to a peak at 34,000 people.
The housing market is forecast to maintain solid growth through to a cyclical peak in 2015-16 (housing commencements peaking at 184,500 units). This will partly dampen demand for residential landscaping design and installation services, although activity will remain high by historical standards. As the pace of economic growth strengthens through the course of the next five years, property values are also expected to gather momentum, encouraging householders to leverage on their mortgages to spend on landscaping services.
The demand for landscaping services will continue to strengthen in the commercial building market through the mid-term, presenting contractors with opportunities to enter into long-term design and maintenance arrangements with property developers. The ‘greening’ of inner city buildings will provide scope for supplying niche landscaping services for the establishment of rooftop gardens, vertical gardens and accompanying infrastructure. Investment into the institutional building market will also gradually recover through the mid-term, particularly focused on hospital expansions and new aged-care facilities, which will include landscaping installation and maintenance components.
Within the infrastructure market, landscaping demand will contract towards the mid-term due to the scaling back of investment into large-scale road and mining projects. This will be an area of concern for some contractors, as will the scaling back of landscaping services on public parks, golf courses, dam sites and land reclamation projects, and declines in design and installation services on roadside landscapes.
Key success factors
- Ability to alter goods and services produced in favour of market conditions: Operators need be able to meet demand for a broad and changing range of services.
- Maintenance of excellent customer relations: As much of this industry generates business by word of mouth, having good customer relations is essential. This is even more evident as industry participants seek to contest long-term maintenance contracts with commercial or institutional clients.
- Access to the latest available and most efficient technology and techniques: Operators need to employ state-of-the-art communications and other technology.
- Management of seasonal production: Successful contractors typically display good management skills in controlling the workload and managing the flow of new contracts.
- Economies of scope: Operators must have the capability to undertake a wide range of landscaping activities, and must have the capacity to undertake or subcontract specialist skills.
- Having contacts within key markets: Successful firms undertake effective marketing and establish a reputation for quality and timeliness among local builders, developers and landscape architects (designers) in key markets.
Karen Dobie is the general manager of IBISWorld, Australia’s richest source of business information.