Australia’s construction sector has significant opportunity as a large pipeline of work continues to grow, a new report suggests.

But underlying cost and pricing pressures continue to mount even apart from the effect of the Iran war.

In the April edition of its Insight report, Rawlinsons Cost Management has provided an overview of current market, cost and tendering conditions for construction projects across each state and territory capital city.

Overall, the report says that the market is extremely busy and is expected to remain that way over the immediate future.

This is being driven by a strong and growing pipeline of housing projects along with major infrastructure developments that span across several years.

From a geographic viewpoint, the boom is broad based and major projects are underway across every state and territory.

That said, the intensity of activity varies across locations.

Whereas contractors in Brisbane and Perth report an ‘overheating’ market, for example, a mild respite in bidding competition is evident in Sydney.

Turning to cost, however, the picture remains challenging.

In terms of cost forecasts, the report provides two sets of figures.

First, it provides a series of ‘baseline’ forecasts.

These are focused on underlying market conditions and exclude the impact of the Iran war.

Using this baseline, Rawlinsons forecasts tender price escalation across calendar 2026 ranging from 3.0 percent in Hobart to 8.0 percent in Perth.

In particular, elevated levels of escalation across 2026 are forecast in Brisbane (8.0 percent), Perth (6.5 percent), Adelaide (6.0 percent) as well as Sydney, Canberra and Darwin (5.0 percent each).

This is being driven by ongoing labour shortages and productivity challenges.

In addition to this baseline forecast, Rawlinsons has provided two forecast scenarios of additional tender price inflation which is expected to occur as a direct result of the Iran war.

The first scenario assumes a short-lived disruption in which fuel prices normalise by the middle of the year and impacts upon freight and programs are relatively minor.

In such a scenario, Rawlinsons forecasts that the overall rate of cost escalation for commercial building projects in metropolitan areas across 2026 will exceed baseline forecasts by between one and two percent.

The second scenario allows for a more prolonged crisis under which elevated fuel prices persist until late 2026 and beyond, material and logistics price escalation is sustained and impacts upon long-duration projects are more lasting.

Under this scenario, Rawlinsons forecast that tender price escalation across 2026 could exceed baseline forecasts by between six and nine percent.

Even higher levels of escalation are likely on civil projects and on projects which are located in regional areas, Rawlinsons warns.

“Australia’s construction industry has entered 2026 at record levels of activity,” Rawlinsons says in its report.

“The total value of construction work done reached around $80 billion in the December 2025 quarter alone, one of the highest quarterly outputs on record.

“This cements a trend of elevated building and infrastructure investment: in real terms, annual construction output is up roughly 3% on a year ago, marking a new high-water mark for the nation’s builders.

“However, this boom in work is accompanied by resurgent cost pressures. Current conflict in the Middle East, persistent labour shortages and low productivity rates is putting upward pressure on construction costs across the nation.”

(According to its baseline forecasts, Rawlinsons expects cost escalation of between three and eight percent across major capital cities in Australia in calendar 2026. This excludes the effect of the Iran War. If the war is protracted, cost escalation on commercial building projects could exceed this level by as much as nine percent.)

Differences across cities

In its report, Rawlinsons provides a breakdown of conditions across each of the eight capital cities.

Leading the way in terms of cost pressures is Brisbane, where Rawlinsons is forecasting tender price escalation of 8.0 percent under its baseline scenario (excluding the effect of the fuel crisis as mentioned above).

According to Rawlinsons, current geopolitical conditions have brought forward what were already expected to be elevated levels of escalation across Queensland on account of robust levels of work in that state.

This has occurred as suppliers and contractors have responded to greater levels of project risk and associated financial impacts by being more conservative in terms of their tender pricing.

As expected, the Iran War has increased pricing for those trades which have a strong dependence on oil-based products. With diesel costs reaching record highs in March, fuel-intensive trades and freight-reliant supply chains have been among the first to experience cost increases, which have been most commonly expressed through fuel levies and surcharges.

In addition, the ongoing level of uncertainty is also leading to a greater number of qualifications being inserted into tender documentation and contracts. These most commonly focus on force majeure, acts of war and the application of rise-and-fall clauses.

This is occurring as parties seek to share project risk in a fashion which is more equitable.

In terms of activity, Rawlinsons says that the market remains strong and that most sectors are operating at levels which are busy but sustainable.

Turning to Sydney, Rawlinsons says that New South Wales entered the first quarter of this year with a softer private development environment as recent interest rate increases in February and March have seen the cost of finance begin to rise again and funding for new projects become more constrained.

This is particularly the case for feasibility-sensitive project sectors such as higher density residential.

Despite this, capacity constraints continue to be a challenge as large public infrastructure projects continue to absorb plant, labour and specialist trades.

These projects include Sydney Metro West, Parramatta Light Rail Stage 2 and Western Sydney Airport precinct works.

In addition, the Middle East crisis has introduced renewed volatility across freight, quarry products and imported materials.

Concrete, aggregates, aluminium and polymer-based products are the most exposed product categories while timber and mainstream steel have remained relatively stable at the commodity level.

However, delivered prices are now facing upward pressure from fuel and freight costs

Overall, Rawlinsons says that a baseline cost escalation allowance (excluding fuel crisis related impacts) of between 4.5 percent and 5.0 percent across 2026 remains adequate for most NSW metro projects.

However, it cautions that higher risk allowances may be needed in relation to more exposed work packages.

In terms of prices, tendering remains competitive and the headline rate of price escalation has moderated.

However, greater levels of risk are now being priced into specific packages.  This is particularly the case for fuel, logistics and specialist intensive trades.

Meanwhile, an increasing number of qualifications are being incorporated into project tenders on account of the current fuel situation. These include shorter validity periods and explicit contingencies.

Finally, turning to Adelaide, Rawlinsons says that demand for building and civil construction is expected to remain strong throughout 2026/27 on account of investment in defence, major transport infrastructure, housing supply, mining, energy transition and industrial projects.

Defence represents the most significant structural shift, with the Osborne Naval Shipyard and submarine program likely to underpin sustained construction activity well into the 2040s.

This includes supporting manufacturing and supply chain facilities.

Over the near term, projects such as the North-South Corridor Tunnel will generate significant demand for labor, materials and plant over several years.

All up, tender prices are expected to increase by five and six percent over 2026 (baseline forecast) on account of sustained demand and limited contractor supply.

(With over 22,000 lines of data spanning 338 commercial and residential building types, Rawlinsons Cost Data is Australia’s leading platform for construction cost information.)

Fuel crisis recommended actions

In its report, Rawlinsons advises that construction industry stakeholders consider several strategies in response to the current fuel crisis.

These include:

• Proactive review of contract risk allocation and escalation provisions
• Early and disciplined procurement planning for high-risk packages
• Transparent risk-sharing arrangements between project parties
• Ongoing monitoring of fuel markets, freight costs, and supplier capacity
• Early, consistent communication to support informed decision making

It says that while no single strategy eliminates volatility, a structured and collaborative approach can materially improve project resilience and delivery outcomes.

With more than 22,000 lines of cost data spanning covering 338 commercial and residential building types and historic data dating back to 1983, Rawlinsons Cost Data by Rawlinsons Cost Management is Australia’s leading and most extensive platform for construction cost information.

The platform provides cost data (residential and/or commercial – depending on the chosen subscription, estimating rates, detailed prices, building price index, labour and plant constants, building regional indices, recycling and refurbishing rates (commercial only) and renovation rates (domestic only).

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