Australia’s construction markets continue to face headwinds, yet the outlook improves with growing interest in Public-Private Partnerships to address key constraints.

Construction activity across Australian markets remained mostly stable over the third quarter of 2024, however, the outlook for some markets is showing signs of improvement. Government commitments at both state and federal levels continue to drive the bulk of construction activity across markets, with significant investments in transportation, renewable energy, housing and social infrastructure projects continuing to dominate the pipeline.

Growth is uneven across various markets, with demand surging in some areas while flattening in others. A general softening is underway across the private sector in most Australian markets, driven by higher interest rates, high construction costs and waning market demand. While public sector projects continue to support most markets, there has been growing interest in Public-Private Partnerships (PPP) to deliver future projects and overcome hurdles faced by both sides.

Queensland continues to experience the most heat across the country, supported by the region’s strong population growth and the positive impacts of the upcoming 2032 Brisbane Olympic and Paralympic Games. Development plans are underway, and state spending is increasing on housing and healthcare to accommodate the influx of residents attracted by the relatively low cost of living and ample job opportunities. However, the recent change in government may have a potential impact on some of these projects.

Commercial projects in office and retail continue to experience the most substantial slowing, given the ongoing headwinds surrounding end-user demand. However, more firms are moving towards mandating office-based working, which could see some improvement across these sectors, particularly in the central business district locations.

Data centres remain a pillar of strength for the private sector, with international firms continuing to explore further expansion in the Australian market. Once monetary easing is underway, we anticipate private sector investments to gradually start to increase, which should support a stronger outlook for the private sector in the second half of the decade.

In the near term, public sector infrastructure investment in transportation will support activity across most markets. Additionally, the outlook increasingly points towards a strong ramp-up in renewable energy production and transmission, driven by Australia’s commitment to achieving net-zero emissions by 2050. Renewable projects are expected to increase strongly in the coming years, which could surpass investment in transport projects before the end of the decade.

Australian construction markets continue to experience skilled labour shortages, which has been the key driver of tender price inflation in recent months. Recent pay deals secured by construction unions for Enterprise Bargaining Agreements (EBAs) have been the latest contributor to rising costs. However, recent developments have led the federal government to place the construction union into administration, with questions still lingering around whether EBA deals will be upheld and could materially change the outlook for construction cost escalation in the coming years. These latest developments have downgraded our outlook for construction cost escalation.