Australia’s construction sector remained near record levels in 2025, with total activity reaching $318 billion, according to Rider Levett Bucknall’s March 2026 Construction Market Update.
This sustained level of activity has been driven by strong investment across energy infrastructure, data centres and apartment developments, alongside continued public sector spending.
RLB’s Oceania Director of Research and Development, Oliver Nichols, said the national project pipeline remains strong, particularly in Western Australia, South Australia and Queensland, where approvals and project commencements are accelerating.
Cost pressures begin to return
While construction cost escalation moderated in 2025, pricing pressures are beginning to re-emerge as large public and private projects compete for labour and contractor capacity.
RLB forecasts construction costs to rise between 4 and 6 per cent nationally in 2026, with stronger increases expected in:
- Adelaide (5.1%)
- Brisbane (5.0%)
- Darwin (5.2%)
- Perth (5.4%)
- Gold Coast and Townsville (6.0%)
Lower rates of escalation are forecast in Canberra (3.75%) and Melbourne and Sydney (4.0%).
Energy, apartments and data centres driving activity
Engineering construction has strengthened, supported by increased investment in solar, wind and hydro projects, alongside major water infrastructure upgrades.
Residential construction also rebounded in 2025, rising 7.3 per cent, with apartment developments accounting for much of the growth.
Non-residential construction remained broadly stable, although investment increased across data centres, hospitals and aged care facilities.
Victoria and New South Wales have seen particularly strong growth in data centre investment, lifting both approvals and project commencements.
Public sector investment has also increased significantly, accounting for nearly 29 per cent of total construction activity in 2024, up from around 15 per cent in the mid-2010s.
Approvals signal continued pipeline strength
Building approvals rose 15.9 per cent in 2025, led by strong growth in apartment projects, although volumes remain below peak levels recorded in the mid-2010s.
Queensland is expected to lead activity over the coming years, supported by Olympics-related infrastructure projects and major program delivery initiatives.
RLB notes that Sydney and south-east Queensland present a short-term opportunity for developers to bring projects to tender before construction capacity tightens from late 2026.
Interest rates and economic pressures
RLB analysis indicates that rising interest rates could weigh on construction activity.
If the cash rate reaches 4.35%, construction work done (excluding alterations & renovations and mining engineering construction) could be approximately $42 billion lower (-3.5%) over the 2026–27 to 2029–30 period than previously forecast.
Labour shortages remain a key constraint
The industry continues to face persistent shortages of skilled labour, affecting both trades and professional roles such as engineers and construction managers.
Additional cost pressures are being driven by:
- Limited competition among Tier 1 contractors
- Insolvency risks across the sector
- Low productivity, with construction productivity falling 3 per cent in 2024–25
Construction costs eased in 2025, with building costs rising 3.4 per cent and heavy and civil engineering costs increasing 1.8 per cent. However, cost pressures are now re-emerging, with building costs rising at an annualised rate of 4.9 per cent in the second half of 2025.
Global risks may impact material costs
Geopolitical risks may place further upward pressure on construction costs.
Conflict in Iran and the Middle East could increase input costs through higher oil prices and freight costs, while disruptions to shipping routes may impact the availability and price of materials including diesel, bitumen, steel and cement. Developers and contractors may mitigate these risks through earlier procurement, alternative supply chains and maintaining procurement flexibility.
RLB TENDER PRICE INDEX ANNUAL % UPLIFTS AS AT Q1 2026
| AUSTRALIA | 2025 | 2026 f | 2027 f | 2028 f | 2029 f |
|---|---|---|---|---|---|
| ADELAIDE | 3.5 | 5.1 | 5.5 | 6.0 | 6.0 |
| BRISBANE | 5.0 | 5.0 | 7.0 | 7.0 | 7.0 |
| CANBERRA | 3.75 | 4.5 | 4.8 | 4.3 | 4.0 |
| DARWIN | 5.0 | 5.2 | 4.0 | 4.0 | 4.0 |
| GOLD COAST | 4.5 | 6.0 | 7.5 | 7.0 | 7.0 |
| MELBOURNE | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 |
| PERTH | 5.4 | 5.5 | 5.4 | 5.0 | 4.7 |
| SYDNEY | 4.5 | 4.0 | 4.5 | 5.0 | 4.5 |
| TOWNSVILLE | 6.0 | 6.0 | 7.0 | 7.0 | 7.0 |
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