The construction sector continues to experience the effects of higher interest rates. Although the RBNZ has initiated its rate-cutting cycle, the industry remained under pressure in the December quarter of 2024, with activity declining by an additional 3.1 percent.

Although residential construction activity has been subdued, recent data indicates early signs of stabilisation. Seasonally adjusted residential building consents increased by 0.7 percent in February, following a 2.7 percent rise in January. Despite ongoing headwinds, housing development is expected to gain momentum in the latter half of the year as market conditions improve. The RBNZ has already reduced the Official Cash Rate by 200 basis points, with further cuts anticipated. As borrowing costs decline and housing demand strengthens, a gradual recovery in residential construction is likely.

Performance in the commercial sector has varied. Demand for office refurbishments has increased, driven by the growth of regional and international businesses establishing branch offices. The return-to-office trend has further contributed to growth in this segment. Additionally, the data centre market remains highly active, with several major projects underway or planned, sustaining strong demand and maintaining pressure on specialist mechanical and engineering subcontractors.

However, other commercial segments remain subdued. The development of industrial storage space, which has seen significant expansion in recent years, is now moderating. Meanwhile, weaker economic activity and constrained consumer spending have led to limited retail space development.

Business investment remains cautious, with firms exercising restraint in committing to significant capital expenditures in the near term. However, as economic conditions improve, investment in new premises and related projects is expected to rise gradually throughout the year.