Regional overview

Australia and New Zealand

⏱ 4 min read

To ensure optimal viewing, it is highly recommended to view this page on a desktop or laptop screen rather than a mobile or tablet device. The larger screen size provides superior clarity and detail, facilitating a better understanding of the presented information.

A region fueled by government-backed growth

Author: Julian Kerwood, Regional Real Estate Lead, Australia and New Zealand

Mixed-use precincts, healthcare and data centres are driving growth across Australia and New Zealand (ANZ) – and public sector spending is on the up. But clients need to be wary of ongoing skilled labour shortages, and how these will impact project costs.

Confidence is high in the economies and construction markets across Australia and New Zealand. GDP growth has slowed across the region – predicted to be 1.0 percent in 2024 for New Zealand, and 1.5 percent in Australia according to the International Monetary Fund’s April 2024 World Economic Outlook. In Australia, state governments continue to invest in infrastructure, helping to unlock new precincts and opportunities across the region.

In Australia, inflation has eased but remains sticky, which is keeping higher interest rates in place for longer. The federal government is focused on relieving cost of living pressures through measures such as tax cuts, electricity bill relief and increased rental assistance. Other policies include significant investments to increase housing supply and clean energy production. While softer market conditions are expected to persist in the near-term, these policies, along with strong support from the private sector, bolster a strong outlook for construction activity over the medium-term.

New Zealand faces more challenges than its neighbour, with higher inflation and a smaller labour force – but growth in data centres, healthcare and education means the construction sector in the country continues to be active.

Current tendering condition

Future market outlook

Many of the anticipated areas for growth in Australia remain around the major East Coast population centres – Brisbane, Sydney and Melbourne. Brisbane, in particular, is already seeing the positive effects of the upcoming Olympic games in 2032. Development plans are being laid out, and state spending is increasing on housing and healthcare to keep up with the influx of people that are moving there for the relatively low cost of city living and plentiful job opportunities.

Cost escalation continues to remain high across Australian markets, driven by skilled labour shortages producing higher labour costs. Average escalation is forecast to be 3.5 percent across Australian markets for 2024, down from 5.6 percent last year.

Public sector forging the path in Australia

The situation in Brisbane is indicative of a wider trend across Australia. Governments are doing most of the heavy lifting with new construction investment, but will require a stronger input from the private side in the years ahead if population demands are to be met.

The Independent Strategic Review of the Infrastructure Investment Program reported late last year the government’s maintained commitment to a 10-year programme of US$120bn rolling investment and an ambition of ‘nation-shaping’. This has identified new rail and road catalysts for long-term growth across the Gold Coast, Perth, Central Australia and beyond. Wherever new terminals and precincts are constructed, we expect to see significant spending on the community-building development to surround them.

Through this, and as economic conditions improve, we expect that these public sector initiatives will set the foundations for a strong return in private sector investment in the years ahead. Clients should watch the focus of public spending closely to identify new opportunity areas and long-term growth potential.

Australia’s population is rising at the fastest rate in its history, and states are building more housing, education, healthcare and infrastructure to meet the rising demand.

How do you think supply chain will perform in the coming 12 months?

Approximately, how has programme length changed over the past 12 months?

Big data – bigger opportunities

Data centres and IT technology are major businesses in both Australia and New Zealand. The number one hotspot is Melbourne, as its cooler climate and prosperous industrial zones make it well-suited to tech and notoriously hot-running data centres. Yet all major cities in ANZ are demanding more data capacity – from Darwin and Perth to Auckland and Christchurch.

Strong demand and limited skilled resources are increasing costs, and while Australian markets sit in the 40s and 50s in our overall global construction market cost rankings, they are all in the top 30 for advanced manufacturing construction costs.

The major challenge is the demand for speedier delivery of data centres – driving project teams to explore new procurement and delivery models to increase efficiency. This includes using project management offices (PMO) to bring the delivery of data centre projects across multiple ANZ regions together, treating them as a single programme to be completed with greater supply chain coordination.

Other constraints facing data centres include access to planning permission, electricity grid connections and water. This is leading some clients to explore secondary markets, though, fundamentally, the demand for data centre projects in the key markets is not likely to abate.

Evolving focus on skills

An ageing construction workforce and lower new intake numbers are constraining the sector with significant skilled labour shortages being felt across all markets. High incoming labour flows and interstate migration have traditionally helped to fill gaps in markets. However, an acute shortage of housing and surging rents and property prices are making it harder for people to move to where the demand is. This is seeing skills shortages intensify across markets and increasing competition to secure skills.

Despite shortages, base labour costs have not increased radically. Where the increases are being seen is in sign-on bonuses and regional allowances to attract skills to projects. The regional average for ANZ now sits at US$59 per hour.

The shift to Labour Governments in all Australian states except Tasmania is leading to more spending on apprenticeships and training to increase the construction workforce in the years ahead. In the immediate term, clients need to be cognizant of where construction pipelines in specific regions may be leading to bottlenecks and higher costs, and to focus on driving productivity and efficiency improvements wherever possible.