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The forecast for construction cost escalation remains elevated across most of Australia’s capital cities, despite signs of softening momentum in activity, according to findings from project advisory firm WT.
WT’s latest Australian Construction Market Conditions Report has shown that recent momentum in the construction sector could continue over 2025, anticipating a national average cost escalation of 5.3 per cent for building and 5.1 per cent for infrastructure.
WT construction economist, Damon Roast, said that Australian construction activity currently remains high across many sectors, including “health, education, utilities and renewables”.
Nevertheless, Roast noted that a range of influences, such as cost pressures, labour shortages, and subdued investment could lead to a less favourable outlook over the rest of the calendar year.
“Various cost pressures persist, with skills shortages continuing and various indirect costs still stubbornly increasing. There are some signs of moderating escalation in some markets, but not generally across the whole,” Roast said.
Across the capital cities, Roast said that Sydney’s market was expected to record a solid performance in its construction sector over 2025, with a cost escalation forecast of 4.6 per cent for building and 5.3 per cent for infrastructure.
“Sydney should see a solid outlook, with a robust pipeline, ongoing strength in infrastructure, and the potential for a boost in commercial sectors if the potential for more interest rate cuts than expected materialises,” he said.
WT’s findings showed that Melbourne is set to undergo a “long-awaited turnaround” in market conditions, which Roast attributed to the decreased cost of materials and higher amount of labour in the city’s building sector.
Roast said that the escalation of construction costs in Melbourne is expected to moderate over 2025, and forecast that building and infrastructure costs would both escalate by 5 per cent throughout the year.
“We continue to expect prospects to improve from 2026, perhaps sooner with more rate cuts,” he explained.
According to the report, the Brisbane market was “still the standout” from the perspectives of both construction and escalation.
Roast said that cost pressures in the city have still continued despite a small lull and resulted in a cost escalation forecast of 7 per cent for the building sector.
Data also showed that infrastructure is pegged for strong conditions in Brisbane over the year, supporting a cost escalation forecast of 6.5 per cent.
Roast warned that there could be “upside risk for escalation” if enough resources can be lured from interstate, particularly with the city’s strong health, education and Olympic pipelines expected to “strain resources for several years to come”.
On the other side of the country, Roast said that Perth market conditions are firmly positioned to strengthen the city.
While the city has typically risen and fallen off the back of mining booms and busts in Western Australia’s north, Roast said it’s not as closely linked to the mining industry as the city’s construction sector remains strong, despite no sign of a recent boom in mining investment.
Highlighting Perth’s “quite strong” construction sector and still evident cost pressures, Roast said that WT expects a cost escalation forecast of 5.5 per cent for building and 4.3 per cent for infrastructure.
Over the coming months, Roast said that initiatives, such as the first home buyer scheme, could significantly raise residential construction activity and put “additional pressure” on the nation’s construction sector.
Roast also pointed to the compound effects of global trade tensions, stating that the Reserve Bank of Australia could potentially issue more interest rate cuts over 2025 that could serve as a catalyst for a “sustained increase in residential activity”.
Alternatively, Roast noted that it may boost activity in the commercial, high-rise and mixed-use sectors, such as in the major markets of Sydney, Melbourne and Brisbane.
Looking ahead, Roast stated that a “complex mix of strong construction pipelines and persistent cost risks” could lead to multispeed performance across the various Australian markets.
“While some regions show early signs of moderation, broader investment in skills and materials capacity is still lagging. Without it, elevated escalation could persist longer than expected,” he concluded.
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