What do current market conditions mean for our escalation forecasts?

Construction escalation remains modest but is facing conflicting pressure as cost dynamics evolve and external risks persist. Factors informing our escalation forecasts are:

• Economy – Continual geopolitical tension, a constrained labour market and impaired confidence subdue economic growth and temper industry activity.
• Construction – Public expenditure is placing a floor under falling growth, although weaker demand may lead to margin suppression and escalation containment on a sector-by-sector basis.
• Input costs – While modest for now, costs are set to rise – particularly from a materials perspective. The duration of the conflict in the Middle East will be critical in the evolution of pricing mechanics.

National bid price escalation is now expected to increase to 2.75% in 2026. This is 0.25 percentage points higher than our Q1 2026 forecast, reflecting a subtle shift in the balance of risk. While subdued activity and increased competition is weighing down on pricing mechanics, risk profiles are being reviewed. Heightened energy costs, commodity price increases and ongoing supply shocks are steadily exerting stronger pressure on construction proformas and risk allowances.

In 2027, our forecast remains unchanged at 4.0%. Escalation is expected to strengthen as market conditions rebound and additional multi-year infrastructure programs come online. Gradually improving private-sector activity should also support stronger workloads, combining to tighten labour and supply chains. This will increase competition for skilled workers and timely delivery, placing upward pressure on bid prices.

In 2028, escalation will remain elevated, with our forecast again unchanged at 4.5%. At this time, sustained activity across public and private sectors, including a recovery in the residential market, will reinforce demand for labour and materials. Structural constraints and accumulated cost pressures will likely support firmer pricing dynamics across the construction industry.

As always, it’s important to note that bid price variability will persist over the forecast horizon, and deviations from our national average will emerge on a project-by-project basis. With such, we’re proposing a range of escalation outcomes +/-2.0 percentage points around baseline predictions as uncertainty persists.