Market shows gradual momentum

Construction activity across Australia remained steady in the fourth quarter. However, the pace and distribution of growth remain uneven due to sector-specific headwinds such as elevated construction costs and global economic uncertainty. This trend has persisted in recent quarters.

Public investment in health, education and utilities continues to underpin activity, while there is a noticeable shift away from road and rail projects toward energy infrastructure and data centres, where private funding plays a larger role. Queensland and Western Australia maintain the strongest growth prospects nationally, though both states remain in a holding pattern as budget allocations and spending timelines are finalised. Early signs of progress are emerging, with procurement activity beginning on several major projects, suggesting momentum may soon build.

The residential sector is showing signs of increased activity, with a rise in dwelling approvals across multiple markets, more work on new and existing homes and commencements in apartment projects. Growth remains uneven, reflecting state-specific policy responses as governments roll out initiatives to stimulate buyer demand and boost housing supply through planning reforms and targeted incentives. Build-to-rent developments and student accommodation projects are also gaining traction, supported by these policy shifts and evolving market dynamics.

Recent developments under the AUKUS Trilateral Pact and the Critical Minerals Agreement are expected to deliver considerable benefits for Australia’s construction sector over the medium-term. Large-scale defence programmes are already driving activity in Western Australia and South Australia, while initiatives tied to the critical minerals deal are anticipated to materialise across several states over the longer-term horizon.

Labour shortages will continue to constrain market capacity, presenting a critical challenge in securing adequately skilled workers to meet delivery requirements in high-demand regions. Anticipated demand from growth sectors, particularly energy and data centre projects, will place additional strain on an already constrained workforce. Shortages are expected to be most acute in specialised trades and technical roles.

Material costs remain stable, and there has been no significant impact on material or shipping costs, although oil prices have fluctuated in response to political uncertainty. So far, these movements in oil markets have had limited pass-through effects on construction input costs, but they have introduced a degree of uncertainty.