What do current market conditions mean for our escalation forecasts?

Construction escalation remains suppressed but is still increasing despite several headwinds. Factors informing our escalation forecasts are:

• Economy – GDP is constrained by ongoing trade dislocation, persistent uncertainty and a fragile domestic backdrop. Cautious optimism, however, presides over the year ahead.
• Construction – Industry activity should increase, yet gains may be modest. Polarising sector performance sees mixed fortunes and uneven growth across the sector.
• Input costs – Geopolitical instability poses clear upside risks to material cost pressures, while labour and machinery and equipment costs are more closely tethered to industry demand profiles.

Our national escalation forecast for 2026 has been maintained at 2.5%, with the competing forces of slackening demand and supply chain pressures nullifying each other. On one hand, subdued investor confidence has fed into thinning workloads and contractors remain primed for work. On the other hand, geopolitical events have added to the construction industry’s cost base and fluctuating tariffs add a premium to risk allowances.

By 2027, escalation is likely to strengthen as broader market conditions improve, with our forecast sitting at 4.0% for the year. Government programs and infrastructure commitments should flow more visibly into project pipelines and private investment could begin to move forward as well, aided by improved trade clarity. However, labour constraints are likely to worsen because of workloads increasing relatively quickly.

In 2028, escalation is projected to grow a shade higher, increasing to 4.5%, reflecting a more mature phase of market recovery. As supply chains tighten and skills shortages exacerbate alongside growing activity, competition for labour and materials will likely apply upward pressure on bid prices. Residential markets should also find their footing and improved workloads here, combined with broader recovery elsewhere, would then support greater pricing power among contractors.

Bid price variability will continue over the forecast horizon, and deviations from our national average will emerge on a project-by-project basis. While downward pressures are still pronounced, we’re proposing a range of escalation outcomes +/-2.0 percentage points around baseline predictions as uncertainty persists.

Our 2026 provincial forecasts vary by region and are visualized in Figure 10 below. Major provinces, with strong residential footprints and high degree of tariff exposure, have seen escalation rates ease further than others. Additional context can be found in each province’s respective commentaries.