Construction activity across Australia moderated in the last quarter of 2024. The private sector remains subdued amid economic headwinds and monetary policy settings, and public spending has slowed as governments evaluate their current pipelines amid cost pressures

In Queensland, the recent change in state government has initiated a 100-day review to evaluate the feasibility of the existing project pipeline, with a second review focusing specifically on Olympic infrastructure. In Western Australia, the upcoming election has delayed the rollout of new government projects and budget constraints in New South Wales and Victoria have further restricted new public project investments. Additionally, the changes in government in the Northern Territory also meant a re-prioritisation of public spend.

Nevertheless, a substantial pipeline of major public projects remains, particularly in transport, health, and defence. Renewable energy projects are also gaining traction, with increasing investment from the private sector. As major transport initiatives near completion, energy projects are anticipated to dominate the infrastructure pipeline in the second half of the decade.

Despite overall weakness across the private sector, the fourth quarter saw an uptick in office fit-out activity. Following a period of low investment, landlords are undertaking upgrades to attract tenants, driven by the delivery of new Grade A office spaces and a growing corporate emphasis on ESG standards. High office vacancy rates in Central Business District areas across Australia further intensify competition for tenants. Additionally, data centre developments continue to show strong momentum, particularly in New South Wales and Victoria.

Given tight financial conditions, private investment is expected to remain subdued in 2025. While we anticipate the first rate cut in the second half of 2025, the pace of reduction is likely to be gradual and the full impact of monetary policy adjustments will take time to materialise across the economy.

High construction costs and labour shortages remain key challenges across the market, affecting project feasibility. However, there has been some improvement in labour availability in cooler markets. To further address the labour shortage and enhance productivity, the Queensland Government has announced a pause on the use of Best Practice Industry Conditions on new government-funded construction projects, aimed at improving productivity and addressing workforce constraints and overspending.