While the New Zealand construction sector cools, rate cuts offer prospects for a more optimistic outlook, though gains may take time to materialise.

New Zealand’s construction sector continues to face headwinds amid a slowing economy, high migrant departures, and subdued market confidence. Both residential and non-residential building consents have declined, with dwelling consents down by 22.0 percent and non-residential consents down by 12.0 percent in the year to July 2024. Industry sentiment is low, with many builders reporting reduced capacity utilisation and a pessimistic outlook for the coming year.

Government investment uncertainty has exacerbated these challenges, particularly in key sectors such as education, social housing and health. Numerous projects have been deferred or cancelled as agencies reassess economic viability and undertake cost-saving measures. This tentativeness in public spending is contributing to a softer project pipeline, affecting confidence across the industry.

The latest round of policy easing measures offers the potential for a stronger construction outlook in 2025. Easing borrowing costs and weaker construction demand could see price pressures improve in New Zealand’s construction sector, which may incentivise new investment from domestic and international sources.

Similarly to Australia, data centres continue to be the top performers of the private sector in New Zealand, which we expect to continue in 2025. Global technology firms are increasingly exploring opportunities across the Asia-Pacific region and with prospects for further monetary easing and alleviating cost pressures, could see much stronger investment in New Zealand in the coming years.

Despite weaker construction activity, skilled labour shortages remain a key challenge for the New Zealand market, particularly for specialised skills associated with high-tech industries. The record number of migrant departures in July 2024 adds to labour market challenges as technical skills continue to migrate to Australia for higher-paid opportunities, exacerbated by a lack of work in the domestic market.

Overall, the outlook for New Zealand's construction markets is cautious, with conditions likely to remain relatively unchanged until mid-2025. A clearer government project pipeline and improved economic conditions will be critical to restoring confidence and driving sector growth.