‘Cautious optimism’ for construction sector

Builders facing labour shortages, challenges keeping staff, inflationary pressures and rising supply costs see a brighter 2025 ahead.

A new report from BCI shows builders are feeling more hopeful for 2025 after a horror 2024.

The Australian construction industry will go into 2025 with a sense of “cautious optimism” after suffering a horror period with rising costs, labour shortages and a wave of insolvencies.

BCI Central’s Construction Outlook Report – Australia found economic challenges remained with high inflation and costs, and a 4.35 per cent cash rate have slowing growth.

However, the report said government spending provided some stability, and early-stage project numbers showed positive movement through 2024, offering a steadier foundation heading into 2025.

“Australia’s construction industry enters 2025 with a sense of cautious optimism despite facing economic challenges,” it said.

“Residential construction remains at the forefront of project proposal values, while the commercial and hospitality sector has also exhibited an upward trajectory from mid-2023.

“The key regions of NSW/ACT, Victoria, Queensland and Western Australia are leading early-stage project values, with notable investments in the residential, commercial and energy sectors.”

The report drew on national project data, the 2024 BCI Sentiment Survey and exclusive contributions from leading developers, architects and builders.

It said the beginning of 2024 was marked by a noticeable decline in the number of abandoned projects across the country after having maintained a steady rate of just over 4 per cent throughout 2023. Key contributors to deferral and abandonment rates are the residential and energy sectors, while the industrial, infrastructure and transport sector exhibits the lowest numbers, likely due to the government-funded nature of many projects in this category.

“Several factors may have contributed to this trend, with interest rates playing a significant role,” the report said. “The Westpac-Melbourne Institute Consumer Sentiment Index, released in October, demonstrated a positive shift, increasing to 89.8 points from the previous month’s 84.6 points.”

The report found that the value of project commencements was expected to significantly increase in 2025, driven by the energy and resources sector. NSW/ACT, Victoria, Queensland and WA contribute three-quarters of the total value of commencements during the forecast period from the fourth quarter of 2024 to the third quarter of 2025.

The report found that architects were managing higher costs and adopting building information modelling and virtual reality for efficiency.

Developers were focusing on feasibility and Environmental, Social and Governance compliance, while builders were addressing subcontractor insolvencies, material cost fluctuations and labour shortages.

“Labour shortages, talent acquisition and staff retention were among the top challenges in 2024, with subcontractor engagement becoming a growing concern for builders,” the report said. “The adoption of new technologies presents mixed challenges: developers and architects struggle with integration costs, while builders feel better prepared for transitions.

“Financial pressures like inflation and rising supply costs are impacting all industry groups. In response, construction stakeholders are upskilling and diversifying into new sectors.”

Originally published as ‘Cautious optimism’ for construction sector