Momentum builds

Construction activity across Australia remains broadly consistent with previous quarters. Public expenditure continues to underpin growth in most markets, with a surge in health-related investment driving a near-term spike in activity. Several state budgets have been announced, though none introduced significant surprises. Activity levels continue to diverge across markets, with Queensland and Western Australia showing stronger momentum, while New South Wales and Victoria remain comparatively subdued.

A sectoral shift is emerging in the non-residential private sector. Industrial development has moderated, while data centres remain a standout area of strength. Elevated construction costs, higher interest rates and subdued market demand continue to weigh on private sector activity. Nonetheless, expectations of further interest rate cuts and improving business sentiment are expected to support a recovery in 2026.

Looking ahead, energy and utilities projects are expected to dominate the construction pipeline by the end of the decade, particularly now that there is greater policy certainty around net-zero commitments following the federal election. The outlook remains positive, particularly in regional areas and infrastructure-linked segments.

Strong public expenditure in Western Australia and Queensland is driving a surge in new activity, expected to keep both markets buoyant until the end of the decade. In Western Australia, significant investment across defence, health, transport, utilities, and housing has created a strong pipeline of work for the years ahead. Similarly, Queensland is benefiting from substantial health sector funding and preparations for the 2032 Olympic and Paralympic Games. Both states are likely to face capacity constraints in the coming years and may increasingly rely on interstate resources to meet demand.

Residential building has entered a recovery phase, with year-to-date approval figures for both houses and apartments improving in April. The Reserve Bank of Australia (RBA) has implemented two interest rate cuts since commencing its policy easing cycle, which has started to translate into renewed momentum. However, the effects of this are expected to be more pronounced in 2026, reflecting a cautious market response.

Policy measures are also expected to reinforce the recovery in residential construction. Initiatives such as build-to-rent tax concessions, social housing stimulus, low-deposit loan schemes, and infrastructure funding assistance are designed to accelerate supply and improve affordability.

Skilled labour shortages remain a critical challenge across all Australian construction markets. Anticipated strong demand from high-growth sectors, particularly energy and residential construction, is expected to place additional pressure on an already constrained labour pool. This imbalance is contributing to rising construction labour costs, especially in regional hotspots where workforce capacity is most limited.