As Australian businesses enter the new financial year, industry analysts at IBISWorld reveal which industries are set to have a bumper 2018-19, and which are likely to struggle.
“The standout performer is expected to be intellectual property leasing, with expected revenue growth of 68.2%. Other strong performers include internet publishing and broadcasting; retail property operators; pig farming; and childcare services,” said Jason Aravanis, IBISWorld senior industry analyst.
“Industries expected to decline over the next 12 months, reflecting the changing landscape of the Australian economy, include multi-unit apartment and townhouse construction; building societies; video game, DVD and recorded music retailing; house construction; and iron ore mining. These contractions are in response to changing commodity prices, consumer behaviour, and investor sentiment,” said Aravanis.
Industries set to fly in 2018-19
|Industry||Revenue 2017-18 ($m)||Revenue 2018-19 ($m)||Revenue growth 2018-19|
|Intellectual property leasing||2,826||4,752||68.2%|
|Internet publishing and broadcasting||2,486||2,896||16.5%|
|Retail property operators||22,830||26,590||16.5%|
Intellectual property leasing
Operators in the intellectual property leasing industry lease intellectual property — such as patents, trademarks, spectrum and other intangible property — to businesses in exchange for royalties or licensing fees.
The auction of new spectrum capacity in the industry is expected to lead to significant revenue growth in 2018-19. A spectrum auction is a process whereby a government uses an auction to sell the rights (licences) to transmit signals over specific bands of the electromagnetic spectrum, and to assign scarce spectrum resources. This process plays a vital role in the Australian economy, as the government sells spectrum rights to companies, which then provide consumers with access to services such as mobile networks.
Revenue for this industry has been extremely volatile over the past five years. These extreme fluctuations have been attributable to the auction of spectrum rights by the federal government, which occurs on an irregular basis and depends on the development of new spectrum. Large telecommunication companies, such as Telstra, Optus, Vodafone and TPG, are the main bidders for Australia’s spectrum. For example, TPG purchased spectrum rights for $1.26 billion in the April 2017 auction, in a move to build its own mobile network and ultimately shake up the Australian telecommunications sector. This auction led to industry revenue skyrocketing in 2016-17, followed by a steep fall in 2017-18. A spectrum auction for the 3.6 GHz band is expected to take place in 2018-19, which may re-allocate the 3.6 GHz band for 5G. As a result, industry revenue is expected to increase by a substantial 68.2% in 2018-19.
Internet publishing and broadcasting
The rapid expansion of on-demand video and music streaming services such as Netflix and Spotify is expected to cause the internet publishing and broadcasting industry to grow by 16.5% in 2018-19, to $2.9 billion. This growth is off the back of the continued strong performance of online advertisers, as customers have transitioned to digital services and away from print media.
Rising internet access, particularly in rural areas, and improvements in technology have driven the increasing demand for on-demand streaming services. Services are now being watched on more devices. The ability to handle higher data usage through the continued rollout of the NBN is also expected to contribute to industry growth.
The number of enterprises in this industry has increased over the past five years due to low entry barriers for internet-based businesses. Major players that offer content across multiple channels, such as smartphone apps, are likely to outperform industry growth.
Retail property operators in Australia
Revenue for the retail property operators industry is expected to increase by 16.5% in 2018-19, to $26.6 billion. Demand from retail trade is anticipated to grow in 2018-19, fuelling demand for industry services.
Growing demand from overseas investors has also contributed to the industry’s revenue expansion over the past five years. Demand from overseas investors has largely been due to improved vacancy rates over the period, and growth in Australian property prices, both commercial and residential.
Despite the industry’s strong growth, operators have continued to face pressures caused by fluctuating consumer sentiment, which can affect retail sales and business confidence. While improvements to underlying retail drivers may prompt more spending, an increasing proportion of consumers choosing to shop online may somewhat mitigate the positive effects of these drivers on the industry.
The pig farming industry is expected to grow by 13.7% in 2018-19. Rising health consciousness and continued marketing efforts by Australian Pork Limited (APL) are likely to continue driving consumer demand towards fresh pork. As a result, pig meat consumption is expected to continue growing in 2018-19, as consumers increasingly view fresh pork as a healthy source of protein.
With weight and wellness concerning more Australians each year, consumers are being turned away from traditional red meats like lamb and beef towards leaner sources of protein like fresh pork. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) expects beef, veal and lamb consumption to fall in 2018-19.
Operators in the pig farming industry are anticipated to increase production in 2018-19 to take advantage of this rising demand, while growing demand for premium fresh pork products is likely to boost the domestic price of pig meat. IBISWorld also expects that pig meat exports will grow while import volumes will decline in 2018-19, providing a further boost to Australian domestic pig farmers.
The childcare services industry has benefited over the past five years from rising maternal workforce participation rates and increasing enrolment rates. Both of these factors have been encouraged by increased government assistance packages designed to encourage woman to return to the workforce following the birth of their children.
The industry’s operating conditions are set to change again in 2018-19, with the introduction of the new single Child Care Subsidy (CCS) on 2 July 2018. In contrast to the previous child care assistance package, this new subsidy is to be paid directly to child care operators. The federal government is expected to pay out $8.0 billion in CCS payments in the first year of the policy. This is expected to contribute to the industry’s anticipated growth of 7.2% in 2018-19, to $13.1 billion.
Industries set to fall in 2018-19
|Industry||Revenue 2017-18 ($m)||Revenue 2018-19 ($m)||Revenue growth 2018-19|
|Multi-unit apartment and townhouse construction||25,617||21,173||-17.3%|
|Video game, DVD and recorded music retailing||1,006||927||-7.9%|
|Iron ore mining||62,994||59,494||-5.6%|
Multi-unit apartment and townhouse construction
The multi-unit apartment and townhouse construction industry is expected to face deteriorating demand in 2018-19, as investors respond to the build-up of unsold stock by deferring projects. The recent completion of major apartment developments has contributed to excess supply in several capital cities, notably Melbourne and Brisbane, which is likely to dampen investment until vacancy rates gradually ease.
The scaling back of investment is also expected to coincide with weaker investment from Asia in the local real estate market, which is due to the tightening of mortgage lending practices to foreign residents by the local banks, and the imposition of additional land taxes on foreign investors. Although work done on multi-unit apartments and townhouses is expected to decline, the industry is declining from historically high levels and many of the construction contractors will look to ride out the cyclical contraction. Industry revenue is expected to contract by 17.3% in 2018-19, to $21.2 billion.
The building societies industry has declined significantly over the past five years on the back of prominent exits and a falling cash rate. Intense competition from national banks, and low-interest rates, have placed significant pressure on the industry. Interest revenue generated by building societies on their loan books has fallen on the back of the lower cash rate, despite greater demand for mortgages.
The lack of access to further capital has been a key factor that has led to the conversion of several former operators to banks. In 2012-13, nine building societies were registered in Australia. Only three building societies remain in the current year, with the most recent exit being B&E Ltd’s conversion to a bank in October 2017. As a result, revenue from building societies is expected to decrease by 14.4% in 2018-19, to $436.3 million.
Video game, DVD and recorded music retailing
The video game, DVD and recorded music retailing industry is expected to decline by 7.9% in 2018-19. Changing media formats and the increasing popularity of online shopping are making trading difficult for retailers of products that can be accessed online. Intensifying competition from digital media formats and online-only retailers has significantly contributed to industry revenue declining over the past five years.
The industry’s largest product segment is video games. Although the uptake of video games has been strong over the past decade, the increasing sophistication of online-only stores and the advent of faster and cheaper internet connections have caused a significant portion of video game sales to occur online through platforms such as Steam.
A similar trend is occurring for films, television shows and recorded music, with online streaming through providers like Netflix and Spotify becoming the dominant mode of content delivery. These trends are cementing the industry’s decline.
The house construction industry’s revenue is expected to trend downward in 2018-19, corresponding with the anticipated rise in mortgage interest rates and some deterioration in mortgage affordability. The magnitude of the cyclical correction in demand from the house construction industry is expected to be much smaller than the slump in the aligned multi-unit apartment and townhouse construction industry, which is exposed to substantial unsold stock levels and the exit of foreign investment.
The decline in new housing investment is likely to be most evident in the first-home buyers category, as the recent increases in housing prices and the rise in mortgage repayments are likely to prevent more households from becoming home owners. The house construction industry is anticipated to decline, although continued solid population growth is expected to ensure solid underlying demand for new housing. Overall, industry revenue is forecast to decline by 6.4% in 2018-19, to $41.8 billion.
Iron ore mining
Although revenue generated by the iron ore mining industry is expected to decline 5.6% in 2018-19, this decline is from a relatively high level, and is across an industry that has expanded output dramatically over the past decade. A lower average world iron ore price in 2018-19 is expected to be the main contributor to the industry’s revenue fall. As domestic and global iron ore production volumes continue to increase, iron ore prices are expected to weaken due to oversupply.
The industry relies heavily on Chinese demand, with China anticipated to account for more than 80% of Australia’s iron ore exports in 2018-19. Slower GDP growth in China will likely hinder demand for steel, and hence iron ore. Furthermore, a stronger Australian dollar against the US dollar will reduce the competitiveness of Australia’s iron ore exports. However, as local iron ore quality is very high, and as per-unit iron ore mining costs in Australia are very low globally, the industry will remain competitive in 2018-19 and over the next five years.