Pressures remain on construction costs throughout Australia even as the rate of cost escalation has returned to normal levels, new data shows.

In the latest edition of its Quarterly Report, quantity surveying firm Rawlinsons has provided an overview of current market conditions and cost escalation projections across the nation’s eight capital cities.

Overall, the report suggests that the Australian construction industry has a cautiously optimistic outlook.

This is occurring amid a sustained and steady flow of projects especially in the public sector. It is being further assisted by two reductions in interest rates. The rate reductions will help to alleviate challenges in financing costs for both developers and buyers and to promote greater confidence in undertaking new building projects.

In terms of costs, the report suggests that escalation of between four and seven percent is likely across major capital cities throughout calendar 2025.

It said that the rate of cost escalation has returned to normal levels.

However, it cautions that industry pressures remain and that cost escalation can vary from one project to another.

It stressed that cost pressures should be carefully evaluated for each project.

“The Australian construction industry is poised for growth, driven by substantial investments and policy initiatives,” the report read.

“However, addressing cost escalation, labour shortages, and regulatory challenges will be critical to sustaining this momentum and meeting the nation’s infrastructure and housing needs.

“Cost increases in many states and territories are returning to more conventional historical annual averages.

“However, due to a very high starting point, any further increases put project viability and contractor solvency at greater risk. In 2025, the primary factors influencing cost escalation will be skilled labour shortages, trade tariff uncertainty, and fluctuations in energy prices.

“The rate of escalation can vary significantly from one project to another, driven by a range of factors including, but not limited to: labour availability, energy costs, financing rates, project timelines, material expenses, project size, builder margins, and supply.”

According to Rawlinsons, across capital cities in 2025:

• Cost escalation of 7.0 percent is expected in
• Cost escalation of 5.5 percent is expected in
• Cost escalation of 5.0 percent is expected in Adelaide, Canberra and Darwin.
• Cost escalation of 4.5 percent is expected in Sydney and Melbourne.
• Cost escalation of 4.0 percent is expected in Hobart.

In its report, Rawlinsons gave an overview of conditions in each market.

In Brisbane, for example, Rawlinsons notes that the rate of cost escalation is contracting somewhat notwithstanding that activity across most sectors remains strong and there is a significant pipeline of work.

Tender conditions are easing as current projects move toward completion, Rawlinsons says.

However, significant cost escalation is expected during the last quarter of the year.

From the end of 2025 onward, Rawlinsons says that work on Olympic Games venues will begin to impact market conditions and pricing. This will occur after the Queensland Government released its revised construction program for the Games earlier this year

Turning to Perth, the report indicates that pricing pressures remain as the sector faces a shortage of labour at the same time as demand for construction projects remains strong and the arrival of new workers into the industry is limited.

Whilst recent project tenders indicate that more competition is returning to the market, a shortage of specialist trades in areas such as formwork remains. As a result, price pressures for critical trades such as formwork and concreting remain intense.

As things stand, most contractors are experiencing a steady influx of projects.

Going forward, ongoing work is expected to be complemented by several government funded initiatives in areas such as health, education and justice.

That said, private sector investment remains subdued as prospective developments are experiencing feasibility challenges on account of insufficient returns relative to risks involved and uncertainty in the global economy.

In Melbourne, meanwhile, the rate of construction cost escalation is expected to ease throughout the remainder of 2025.

This is occurring as supply chains and material prices continue to ease whilst competitive tendering is emerging in some sectors.

However, persistent challenges remain in terms of insolvencies, labour shortages and rising costs associated with wages, insurance and regulatory compliance.

Whilst activity across much of the industry remains subdued, some bright spots are evident. These include build to rent developments in residential housing and industrial, health and aged care in commercial building.

Meanwhile, activity in retail, offices and hotels remains flat for now but is showing signs of positive momentum over the medium to longer term.

The latest update can be viewed here.

(image from Rawlinsons web site)

Launched in 1983, The Rawlinsons Australian Construction Handbook is now in its 43^rd edition and provides Australia’s largest library of construction cost data.

With more than 13,000 lines of data covering 32 trades, the Handbook is an essential tool for cost planning and provides accurate cost estimates for all project stages.

For smaller projects (up to $1.5 million), Rawlinsons Cost Guide serves as an essential reference book for builders, architects and consultants.

Both the Handbook and the Guide are available in traditional print or web-based digital format.

Free delivery is offered anywhere within Australia.

Purchasers will receive quarterly price indices and updates throughout the year.

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