Navigating uneven growth

In the third quarter of 2025, Australia’s construction industry is experiencing a period of transition with growth patterns diverging across regions and sectors. While public investment in health, education and utilities continues to anchor activity, the overall pace and spread of expansion remains uneven. Sector-specific headwinds, in addition to high construction costs, relatively elevated interest rates and global economic uncertainty, are shaping distinct trends across segments.

Queensland and Western Australia hold the strongest growth prospected in the national outlook. However, both states remain in a holding pattern as budget allocations and spending timelines are being finalised. Early signs of movement are emerging, with some procurement activity beginning to surface on a handful of major projects, suggesting momentum may soon build.

New South Wales and South Australia appear better positioned than other states in the next tier, supported by a relatively stronger pipeline from the public sector. Victoria continues to experience a step back in activity, with more subdued conditions prevailing.

Non-residential construction is seeing growth in areas like data centres, healthcare facilities and manufacturing plants, driven by long-term structural demand and strategic investment. Meanwhile, commercial developments such as office buildings and retail developments remain sluggish, as the lingering effects of tight monetary policy continue to weigh on feasibility and financing.

The residential sector is beginning to show signs of renewed activity, with a noticeable uptick in dwelling approvals across several markets. However, growth is uneven, with different segment trends emerging in each state. This divergence is being driven in part by state-specific policy responses, with governments individually rolling out initiatives to stimulate buyer demand and increase housing supply, including planning reforms and targeted incentives. These measures are helping to unlock pockets of activity, particularly in urban centres and growth corridors where demand remains strong.

Despite these early signs, the broader residential recovery remains in its early stages. While lowering interest rates, rising wages and limited housing stock are creating more favourable conditions for investment, a much greater increase in commencements is needed to the meet the federal housing target of 1.2 million new dwellings by 2029. High construction costs and lingering investor caution continue to weigh on the pace of new development, suggesting that sustained momentum will require further policy support and market confidence.

Infrastructure investment in Australia is shifting focus. Road and rail construction demand has peaked as more major projects near completion, following several years of robust development. Utilities are emerging as the next growth frontier, driven by the country’s commitment to net zero emissions and the growing need for resilient energy systems and a reliable water supply. This momentum is further amplified by the rapid expansion of data centres, which place substantial demands on power networks and require robust, scalable infrastructure to support their operation and growth.

These emerging opportunities represent a rise in technically complex and high-investment projects, yet they also bring to light challenges in securing sufficient skilled labour to support delivery. This shift may strain resources and impact capacity across other segments of the construction industry, prompting concerns about workforce readiness and sector-wide balance.