According to Rider Levett Bucknall’s (RLB) Forecast 113 report – New Zealand Trends in Property and Construction – despite a soft outlook for the coming year, the long-term outlook remains positive for the construction industry.
RLB Director Grant Watkins said, “Despite the soft construction outlook for the coming year, we continue to see a positive outlook over the longer term.”
“The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) at a rapid pace since August 2024, but the full impact of lower interest rates has been slow to flow through the New Zealand economy so far.”
“With the RBNZ indicating at the August Monetary Policy Statement that it was likely to cut the OCR further in the upcoming October and November meetings, we expect lower interest rates to support stronger construction demand over the longer term,” he said.
The report also noted that the June 2025 GDP release showed a 0.9 percent contraction, increasing the likelihood of the RBNZ pushing the OCR below 2.5 percent to provide additional stimulus to the New Zealand economy.
Internationally, the US Federal Reserve has also commenced easing, cutting its policy rate by 25 basis points to a target range of 4 to 4.25 percent, with further cuts signalled. This reflects a global shift toward monetary stimulus, reinforcing the supportive environment for construction over the longer term.
The report noted that weak construction demand is putting downward pressure on prices in the building sector, at a time when cost pressures are intensifying. These developments are driving a further deterioration in profitability in the building sector.
Building activity trends
Stats NZ’s Building work put in place showed a decline in construction activity in the June 2025 quarter. This follows a small lift in construction activity in the previous quarter, but the recovery has proved short-lived. Stats NZ estimates that residential construction declined by 2.9 percent while non-residential construction fell by 0.4 percent over the June quarter.
According to RLB’s Forecast 113, a breakdown of building work put in place by value across the regions suggests the weakness is concentrated in Auckland, Waikato and Canterbury. Meanwhile, concrete sales by region show the weakness in broader construction activity across the main centres. Construction demand looks to be slow in responding to the sharp decline in interest rates over the past year.
When assessing the near-term indicators for construction demand, continued caution among businesses, given heightened uncertainty, appears to be weighing on private sector non-residential construction demand. In particular, demand for commercial construction has softened.
In contrast, higher global commodity prices are supporting a lift in construction demand for industrial buildings. This is particularly evident in Canterbury, as the increase in global dairy prices encourages on-farm investment.
Building activity outlook
Looking at capacity in the construction sector, the signs are mixed, as reflected in the contrast between the continued easing in residential and non-residential construction cost inflation versus civil construction cost inflation remaining elevated.
Meanwhile, the Australia New Zealand Infrastructure Pipeline produced by Infrastructure Partnerships Australia shows that there are currently 31 projects in the infrastructure pipeline in New Zealand, dominated by fourteen projects in transport (including ten in roading).
Infrastructure Partnership highlighted the Waitematā Harbour Connections (second harbour crossing) currently in detailed planning, the Auckland Airport expansion, which has been awarded and is underway, and the Lower North Island Rail Integrated Mobility Programme currently under procurement in this pipeline.
Te Waihanga, in June, released a draft of its National Infrastructure Plan to provide guidance on a sustainable investment path for infrastructure, offering more certainty for the construction sector. By having a comprehensive picture of the infrastructure needs of New Zealand over the short, medium, and long term to address the evolving needs of the population, the plan aims to enable better planning for policymakers and construction providers.
Building consents
Non-residential consent issuance picked up slightly for the year to July 2025, with demand mixed across the sectors.
Grant added, “The divergence in non-residential construction demand across the regions reflects the two-speed nature of the New Zealand economy. Continued strength in global commodity prices is supporting stronger construction demand in primary production-intensive regions, such as Canterbury and Hawke’s Bay.”
“Notably, there was also a broad-based increase in construction demand in Wellington. In contrast, non-residential construction demand fell sharply in Auckland and Otago,” he said.
Forecast 113 found that in Auckland, this decline was particularly evident in healthcare facilities, as well as industrial and storage buildings. Meanwhile, the reduction in non-residential construction demand in Otago was also broad-based across most sectors in the region.
As demand in Auckland and Otago tends to be more sensitive to interest rate changes, given the predominance of property investors in these regions, weakness over the past year is likely to reflect the hangover effects of higher interest rates.
We expect the full impact of the OCR cuts since August 2024 will support a recovery in non-residential construction in these regions over the coming years.
Building costs
According to RLB, non-residential construction cost inflation eased further in June 2025, with the 0.4 percent increase over the quarter bringing the annual inflation rate in non-residential construction costs to 1.6 percent.
This continued decline in non-residential construction cost inflation to historically low levels suggests spare capacity remains in the construction sector. Building sector firms report that weak construction demand is reducing their pricing power, despite intensified cost pressures.
Grant concluded, “We forecast that non-residential construction cost inflation will ease further over the coming year, given the weak pricing power in the sector. We forecast that annual non-residential construction cost inflation will ease to around 1.2 percent by the end of this year. Beyond that, we expect the recovery in construction demand to reduce spare capacity in the construction sector and support a modest lift in construction cost inflation from 2026.”
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