The first quarter of 2025 has seen the Australian construction industry navigating a mix of steady momentum, ongoing challenges and cautious optimism. With inflation softening, material costs stabilising and interest rate cuts easing some financial pressure, the sector is beginning to breathe a little easier. But behind the scenes, labour shortages, cost escalations and global trade uncertainties continue to shape the path forward.
Green Shoots Amid Growing Pains
According to Rawlinsons, one of Australia’s most trusted sources for construction cost data, the national outlook is modest but positive. Most states are seeing a return to more traditional annual cost escalation rates, generally ranging between 4% and 7%. That said, these increases are stacking on top of already elevated base costs from previous years, which means viability pressures remain front and centre for builders and developers.
Public infrastructure continues to drive activity across the country, from the Sydney Metro and health sector builds in NSW to the Olympic-linked projects on Queensland’s horizon. Meanwhile, in places like Hobart and Darwin, government spending is helping to offset softer demand from private developers.
Still, the industry is far from cruising. Rawlinsons reports a sharp 53% drop in housing completions per hour over the past three decades, highlighting persistent productivity issues. Combined with an ageing workforce and an urgent need for over half a million new workers by 2030, the pressure is on to not only build more but build smarter.
Construction Cost Escalation: A State-by-State Snapshot
The April 2025 update shows a stabilising but still challenging pricing environment. Labour, unsurprisingly, is the standout cost pressure across all regions.
- Sydney: 4.5% escalation forecast for 2025, with rising labour costs, global volatility and major infrastructure projects driving demand and strain.
- Brisbane: Activity remains strong, but price hikes are forecast at 5% for the year, particularly in concrete and rebar.
- Melbourne: Escalation of 4.5% expected, with challenges in contractor solvency and project delays dampening an otherwise active market.
- Adelaide: Industrial development is surging, but skills shortages are keeping escalation steady at 5%.
- Perth: Despite stabilising steel prices, plasterboard and concrete supply issues persist, with costs set to rise by 5.5%.
- Canberra: A surge in large-scale commercial and government projects is pushing costs up 5% year-on-year.
- Darwin: Costs are projected to climb 5% as labour and material supply struggles to meet demand.
- Hobart: Public works are propping up the market, but a potential construction squeeze around the AFL stadium could see price pressures intensify.
Time is Money: Understanding Preliminaries
A standout feature in Rawlinsons’ April update is a deep dive into preliminary costs. These are the indirect but essential expenses that keep projects running, including site setup, supervision, insurance and plant hire.
What’s notable is the shift in how preliminaries are calculated. While it’s common to use percentages of trade costs as a benchmark, Rawlinson cautions against relying too heavily on this method post-COVID. With extended build times, disrupted schedules and more complex logistics—particularly in city centre projects—the percentage approach often underestimates the true cost.
Labour and plant hire remain the dominant contributors, often making up over 50% of preliminaries in urban builds. And location matters. A high-rise in Sydney’s CBD will have dramatically different preliminaries compared to a low-rise in regional Australia.
Forecast with Confidence
For developers, builders and project managers trying to navigate this complex environment, access to accurate and current cost data is critical. That’s where Rawlinsons comes in. With over 40 years of experience, their cost management tools and comprehensive publications like the Australian Construction Handbook help industry professionals forecast with clarity and plan with precision.
To stay ahead of market shifts and better manage project risk, explore Rawlinsons’ full suite of cost data and services at www.rawlhouse.com.au.
