Building the future - Key trends shaping Australia’s construction industry in 2025

Expansion in sector activity

After a volatile year in Australia, the construction and development industry stands on the brink of transformation, influenced by economic trends, government policies, easing construction material pricing and evolving societal needs. In 2025, we expect to see meaningful expansion in the sector as activity will increase across the board – bringing in both opportunities and challenges for developers, investors, and stakeholders.

“In 2025, we expect to see the shoots of a lot of activity – especially around the living sector,” says Altus Group’s Head of Development Advisory in Asia-Pacific, Niall McSweeney. “From government to the private sector and the changes in taxation, it’s an area that’s growing due to demand, so will create a lot of impact.”

Growth in living sectors

The growth in the living sector includes Build-to-Rent (BTR), social housing, student accommodation, and aged care. As Niall noted, “Anything living, anything that you put your head down on at night, is going to be the area where it’ll all be happening, especially as the government chases its 1.2 million new dwellings target.”

Government incentives and private sector interest are converging to drive growth in these areas. Notably, BTR is benefiting from recent changes in taxation, while social housing initiatives are seeing increased governmental intervention, including direct participation in land acquisition and joint ventures.

“In Australia, migration is outpacing housing development,” notes Niall. “Even if we see equal amounts of people leaving vs. coming into the country, this does not mean a like-for-like of housing needs as some leave from living at home with parents, while others arrive requiring an empty apartment. All of this is adding pressure to the housing supply chain.”

Programs such as the “pattern design book” for residential developments highlight efforts to simplify and expedite approval processes. The design book will allow users to fast-track some of the more time-consuming elements of the approval process with pre-approved designs and an accelerated approval pathway. While these initiatives are steps in the right direction, as we move into 2025, further alignment between cost-efficiency and policy goals is necessary to maximise their impact.

Infrastructure pipeline and industrial pivot

Australia’s infrastructure pipeline remains significant but is showing signs of deceleration. Private sector investment, typically expected to pick up post-government stimulus, is showing signs of slowing beyond existing projects due to global economic uncertainties like developments in Southeast Asia, the United States, and Europe, with China’s economic health continuing to cast a shadow over the global outlook. “There’s still a monster pipeline of work that is in delivery, but beyond that, the forward outlook is starting to slow,” Niall says.

There is a clear shift for industrial developers pivoting toward data centres, driven by high demand for digital infrastructure. However, this shift brings new challenges, particularly around energy consumption and power availability, which remain critical bottlenecks. “Ensuring reliable energy supplies will be paramount for sustaining growth in this high-potential area,” as Niall succinctly puts it: “As much as it’s about the location for data centres, it’s also about power.”

It is delivering a lot of activity in services infrastructure as well as the development of renewables to meet the environmental performance that investors are seeking.

The evolving ESG landscape

Sustainability will remain a central theme in 2025. While there is a lot of understanding around the operational efficiency of buildings, which has led to improvements, the industry continues to grapple with whole-of-life carbon assessments. Mandates for embodied carbon measurement are increasing, but practical implementation and realistic benchmarking remains complex.

“To truly see shifts in the sustainability sector, standardisation and technological innovation are needed to address these gaps effectively,” Niall says. “The adoption of advanced construction technologies like prefabrication, digital twins, and just-in-time material delivery are among the innovations streamlining processes and improving sustainability outcomes. If you can do it right, you can dramatically reduce the amount of waste generated and the cost because of uniformity and standardisation.”

2025 is also predicted to bring a shift from environmental (E) concerns toward social (S) and governance (G) aspects. Impact investing is gaining traction, particularly in affordable and social housing, which points to a broader recognition of ESG as a holistic strategy, rather than just focusing on the environmental aspects.

“Impact investing is all about saying you’re doing something for society at large – I think this is something very appealing to the market and ticks the box in many areas” noted Niall.

Labour and talent shortages

Some issues are emerging around key trades, including plumbers, electricians, and carpenters – all of which are in extremely high demand and will continue to be in 2025. “The pressing challenge isn’t necessarily coming from the availability of people. What we are finding is rather than a labour shortage, there is a talent shortage.”

The decline in the overall quality of talent is compounded by the ongoing problems with the completion details of infrastructure projects. This emphasises the need for targeted training and retention strategies to ensure the talent gap doesn’t widen.

Construction material prices

When it comes to construction material pricing, we project the rate of escalation to ease gradually in 2025. While increased geopolitical risks are pushing up construction costs and causing potential volatility of commodity prices, the softening of government demand is starting to ease cost growth.

By reviewing controllable factors, Australia’s construction industry can mitigate cost risks and position itself for sustainable growth. For example, lean construction offers immediate solutions by reducing waste and improving efficiency, especially in the BTR and student accommodation sectors.

“With costs still high but escalation easing, the industry has a chance to lead globally,” states Niall. “While geopolitics are unpredictable, leaders can invest in workforce development, innovation, and sustainability to help future-proof the sector.”

Blueprints for 2025

The Australian development and construction industry is entering 2025 with a mix of optimism and caution. “The era of near-zero interest rates is over,” states Niall. “Next year, businesses and investors can and must adapt to the new norm of a higher interest rate environment. By incorporating this reality into feasibility assessments and long-term planning, particularly for large-scale and capital-intensive projects, developers can continue to survive and thrive.

While challenges such as labour shortages, regulatory uncertainty, and financial pressures persist, opportunities in living sectors, sustainability, and technological innovation offer paths for growth and resilience. As we consider the year ahead, collaboration between the private sector, government, and broader industry stakeholders will be critical in shaping a sustainable and prosperous year for the industry.

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