Australia and New Zealand market intelligence: tight labour market impacts construction
Our latest report shows that Australia and New Zealand’s construction sectors are experiencing a slowdown, with challenges such as subdued private investment and uncertainties surrounding public sector projects.
Both nations are continuing to grapple with labour shortages, though the drivers differ. Australia faces high demand for skilled workers due to a robust project pipeline, while New Zealand struggles with declining net migration.
Economic headwinds and high construction costs slow activity
Australia’s economy is experiencing a period of transition. While public spending has provided relief to the economy, it’s also contributed to inflationary pressures. The labour market remains tight, with unemployment low, and the Reserve Bank of Australia is expected to delay rate cuts until later in 2025.
Construction activity has moderated, with private sector investments subdued by high construction costs. Meanwhile, public sector projects are facing delays due to government reviews and budget constraints.
In contrast, the data centre sector continues to boast a robust pipeline of projects, and the corporate occupier sector is experiencing a renewed focus on fit-out upgrades, spurred by tenant demand, Grade A workspaces, and a growing emphasis on environmental, social and governance standards.
Improved supply chain efficiency and declining material costs
New Zealand's economy contracted sharply in the third quarter of 2024, with Gross Domestic Product declining for two consecutive quarters. Inflation has returned to the Reserve Bank of New Zealand's target range, allowing for interest rate cuts. However, economic recovery is being hindered by slower population growth.
The labour market has softened, with unemployment on the rise. Slower population growth is impacting consumption, housing demand and labour supply.
Construction activity in both the public and private sectors remains subdued. While business sentiment is improving, it’s not yet translated into increased private investment. Uncertainty surrounding government project reviews is impacting the public sector pipeline.
Economic growth is expected to recover in 2025 as interest rates decline, but employment growth will likely remain weak. It’s also likely that inflationary pressures will ease over the medium term.
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