inflated construction costs are set to continue according to advisory firm WT, who have recently released their latest Australian Construction Market Conditions Report.

The report indicates that cost escalation will remain at approximately 4.5-5.5 percent per annum on average nationally. WT believes that fundamentals for construction labour indicate a continuing tight market.

The entire infrastructure sector is also struggling from sub-par investment and complexity in the pipeline, which WT attributes to major transport projects and a pivot towards renewable energy. Major rail projects in a number of state capitals will see escalation strengthen in 2025 and remain elevated in 2026 across most markets.

“Our three-year outlook includes a forecast of an average around 5 per cent per annum across capital city markets for Building, while for Infrastructure, we expect escalation around the 5 per cent mark for 2024 before rising closer to 6 per cent per annum on average across capital city markets in 2025 and 2026,” says Damon Roast, WT’s construction economist.

“Key to this outlook is new analysis that shows investment in new sector capability has been sub-par over many years, creating a persistent environment of higher escalation even with supply chain and COVID-led disruption now largely behind us.”

Escalation remains at a standstill in Sydney, attributed to the increased unionisation of trades, recent regulation changes and skilled workers moving to South East Queensland. In Melbourne, escalation is forecasted to soften in the short term but will only last until 2026.

WT anticipates that the state election will influence Brisbane’s future market, mainly due to policy decisions revolving around the 2032 Olympics. A solid pipeline of major projects in Adelaide will see costs remain high, but a number of major infrastructure projects could alleviate pressure.

Impacted industry capability and unionisation is expected to push escalation higher in Perth, while already-elevated building activity in Hobart could lead to significant escalation. In the nation’s capital, there are increasing concerns regarding the pipeline in the commercial sector, which could weigh on the escalation outlook in building.