InfrastructureLindsay SaundersWed 27 May 26
Construction Activity Lifts, No Thanks to Residential
Australia’s construction activity strengthened in the March 2026 quarter, driven by gains in engineering and non-residential building work, according to new preliminary figures from the Australian Bureau of Statistics.
Non-residential building work increased 2.5 per cent quarter-on-quarter to $17.65 billion, with private sector projects driving the uplift while public building activity remained broadly flat.
Residential building work eased 0.6 per cent in seasonally adjusted terms to $27.06 billion after a strong end to 2025.
Engineering construction activity rose 6.9 per cent over the quarter to $38.65 billion, led by a 15.3 per cent surge in private sector work.
Oxford Economics Australia economist Michael Dyer said recent home data pointed to stronger residential commencements in the near term, while apartment project tracking suggested continued expansion through the 2027 financial year.
“Signs are positive for home commencements near term, with the latest new home data arriving to the upside, while our apartment project tracking points to continued expansion through the 2027 financial year,” Dyer said.
Outlook beyond 2027 ‘challenging’
He said the outlook beyond that period was becoming more challenging as renewed material cost pressures and higher interest rates weighed on development feasibility.
“The Iran conflict-linked supply shock has triggered another spurt of material cost growth, while the RBA has hiked rates more aggressively than was assumed at the start of the year,” Dyer said.
He said labour shortages and utility connection delays across major cities continued to constrain project delivery capacity.
“The ability to deliver projects will be a key determinant in the shape and peak of the work done upturn,” Dyer said.
Data centres had emerged as a major driver of non-residential building activity, alongside continued momentum in high-spending sectors such as public hospitals, he said.
“Data centres have raced ahead as the key driver of non-residential building activity, and there is still a sizeable and growing pool of work yet to come across the segment,” Dyer said.
Dyer said private engineering construction was being underpinned by projects linked to electricity grid decarbonisation, although rising costs and industry capacity constraints remained key risks for the sector.
“The Middle East conflict has pushed up oil prices and will underpin a stronger level of construction cost price increases over 2026, while labour shortages are expected to remain an ongoing challenge,” he said.
