Global Construction Market Analysis and 2025 Forecast

Subcontractors in Australia and New Zealand (NZ) will face both opportunities and risks, particularly in the engineering and infrastructure segments, which show stronger performance relative to residential and non-residential building. 

This white paper provides a concise view of global market dynamics, then focuses on key trends, forecasts, and considerations for subcontractors operating in Australia and NZ.

1. Global Market Overview

1.1 Macroeconomic and Supply Chain Factors

• The International Monetary Fund (IMF) projects global economic growth of 3.2% in 2024 and 3.3% in 2025, sustained by ongoing recovery efforts and infrastructure investments in many regions. 
• The global supply chain remains under stress, influenced by the Ukraine conflict, lingering pandemic effects, and the so-called “Red Sea crisis,” which has disrupted key shipping routes. These factors contribute to higher lead times for materials such as steel and add volatility to construction costs. 
• Labor costs are rising worldwide due to skilled worker shortages, pushing construction expenses upward in both advanced and emerging markets.

1.2 Market Growth and Regional Trends

• Global Growth Rate: Forecasts suggest a 3.4% average global increase in construction costs in 2024, gradually easing toward late 2025. 
• Regional Highlights:
  • Middle East and Africa: Strong infrastructure programs, especially in Saudi Arabia, but constrained by financial volatility and materials cost escalations.
  • Europe: Modest construction cost inflation amid cautious investor sentiment.
  • North America: Inflation remains elevated at approximately 6.1%.
  • Asia-Pacific: Largest regional market by volume, with continued urbanization and public infrastructure plans fueling demand.

1.3 Sustainability and Technology

• Growing investment in “green construction” and energy-efficient buildings is gaining prominence worldwide. Governments and large clients increasingly encourage or mandate sustainable materials and methods to reduce carbon footprints.
• Technological innovations (e.g., AI-driven project management, digital twins) continue to streamline construction processes, but adoption outside Tier-1 companies can be slow.

2. Australian Construction Market

2.1 Overall Outlook

• Australia’s construction industry faces ongoing supply chain pressures, contractor insolvencies, and skilled labor shortages. While demand is softening in some sub-sectors, engineering construction remains a strong performer, bolstered by large public infrastructure projects. 
• The total value of construction work is estimated at over $1.3 trillion from 2024 to 2028, with buildings accounting for the largest share (about 62%), followed by transport and utilities. 

2.2 Residential, Non-Residential, and Engineering Segments

• Residential: Activity is expected to remain significant but shows variability by state. Some forecasts suggest a mild dip in new dwelling starts before modest recovery post-2024. 
• Non-Residential: More subdued, with commercial and retail construction facing slower growth due to economic uncertainties and evolving work patterns.
• Engineering Construction: Continues to be the standout segment. Large-scale public infrastructure, mining, and energy projects (including renewables) are key drivers. 

2.3 State and Territory Variations

• Northern Territory: Expected to see growth of around 2% in 2024–25, mostly from engineering projects offsetting weaker residential building.
• Western Australia: Benefitting from robust mining activity and related infrastructure, though skilled labor shortages and cost pressures are acute.
• Australian Capital Territory (ACT): Stable outlook with forecast 2–2.5% growth, driven by government spending and diversified economic activity.
• South Australia (Adelaide): High demand, skilled labor scarcity, and rising wages; contractors are more selective, focusing on profitable projects. 

2.4 Costs, Pricing, and Contractor Landscape

• Tender Price Index: Annual increases forecast in the 4–6% range for most major cities in 2024, gradually easing by the end of 2025.
• Insolvencies: Construction continues to lead all industries in insolvency filings. Subcontractors need to maintain robust cash-flow management and project selection strategies. 
• Tier-1 Concentration: Major players (e.g., CIMIC, John Holland, Lendlease) are capturing a larger share of public infrastructure contracts, which can create an intense competitive environment for mid-sized firms.

2.5 Skills and Labor Market

• Workforce shortages persist, particularly for trades such as plumbing, bricklaying, and cabinetmaking. Government efforts to streamline skilled migration and training may partially alleviate shortages but will not fully resolve the capacity gap in the near term. 

3. New Zealand Construction Market

While less data is available in the referenced briefing for NZ, general industry indicators and recent external reports highlight similar challenges and opportunities:

• Economic Outlook: NZ is experiencing a moderate growth path, with infrastructure developments (including road, rail, and civil projects) supporting demand through 2024–2025.
• Residential vs. Commercial: Softness in residential building permits is offset by public infrastructure and commercial developments in major urban centers like Auckland, Wellington, and Christchurch.
• Cost Pressures: Materials and labor costs remain high due to supply chain disruptions, inflation, and migrant labor shortages, echoing Australian conditions.
• Sustainability: Environmental standards continue to tighten in NZ, particularly around seismic resilience and green building requirements.

1. Key Implications for Subcontractors

1. Risk Management:
   Insolvencies and cost escalations require subcontractors to adopt rigorous financial planning. Monitoring client solvency and implementing protective contract terms are crucial.
2. Workforce Strategies:
   Skilled labor remains the single largest constraint. Investing in training, leveraging apprenticeships, and exploring automation for repetitive tasks can reduce labor pressure.
3. Supply Chain and Procurement:
   Subcontractors should diversify supply chains and consider purchasing critical materials earlier to mitigate price fluctuations. Collaboration with suppliers on long-term contracts can help secure more stable pricing.
4. Sustainability Requirements:
   Government and corporate clients increasingly demand green construction practices. Subcontractors who can demonstrate sustainability credentials may gain a competitive advantage.
5. Digital Adoption:
   Using technology (e.g., project management software, BIM, or AI-driven scheduling tools) can improve efficiency and transparency, positioning subcontractors to meet Tier-1 contractors’ demands.
6. Focus on Engineering and Public Infrastructure:
   With strong government spending in transport, utilities, and energy, subcontractors should consider diversifying into these stable segments if they have (or can develop) the requisite capabilities.

5. 2024–2025 Forecasts: Key Points

• Australia:
  
  
  • Moderate overall growth, with engineering construction leading.
  • Tender prices rising 4–6% in 2024, tapering slightly in 2025.
  • Labor market tightness continues, although government policies may improve workforce supply by late 2025.
  • Insolvencies likely to remain above pre-pandemic levels, necessitating caution in contractual risk allocation. 
• New Zealand:
  
  
  • Public infrastructure projects provide a stable pipeline in 2024–2025.
  • Residential construction shows patchy recovery, highly dependent on regional economic conditions and interest rates.
  • Ongoing inflationary pressures and labor shortages mirror Australia’s challenges.

Conclusion

The global construction market in 2024 wass marked by gradual recovery and moderate cost escalation, set against a backdrop of complex supply chain dynamics and widespread labor constraints. Australia and New Zealand generally follow these global patterns, though opportunities in engineering and infrastructure projects remain strong. For subcontractors, strategic focus on financial resilience, skilled workforce development, and technological adaptation will be vital to navigating the coming year and positioning for a more stable 2025. 

By proactively managing risks—particularly insolvencies, escalating material costs, and labor shortages—subcontractors can leverage the anticipated growth in infrastructure spending and deliver resilient project outcomes. Adopting sustainability practices and digital tools will further enhance competitiveness in an evolving construction environment that increasingly rewards innovation and efficiency.