Key points
- Escalation forecast to 2026 remains stubbornly elevated, around 4.5-5.5% per annum on average nationally. This is more so in Building, where WT’s escalation view has increased, than Infrastructure.
- Key to this outlook is new analysis which shows investment in new sector capability has been sub-par over many years. This has meant an environment of higher escalation has persisted even with supply chain and COVID-led disruption now largely behind us.
- WT’s analysis not only points to sub-par investment for the sector as a whole, but also specifically for the pipeline of key trades and the manufacture of building materials.
- Elevated escalation more likely to persist to 2026 and beyond, with increased likelihood of recurring escalation spikes as sector activity bumps into capability constraints more regularly.
According to cost management and advisory firm WT latest Australian Construction Market Conditions Report, cost escalation forecast to 2026 remains stubbornly elevated, around 4.5-5.5 per cent per annum on average nationally.
“Our three-year outlook includes a forecast of an average around 5 per cent per annum across capital city markets for Building, while for Infrastructure, we expect escalation around the 5 per cent mark for 2024 before rising closer to 6 per cent per annum on average across capital city markets in 2025 and 2026,” says Damon Roast, WT’s construction economist.
“Key to this outlook is new analysis that shows investment in new sector capability has been sub-par over many years, creating a persistent environment of higher escalation even with supply chain and COVID-led disruption now largely behind us,” explained Damon.
The report notes that fundamentals for construction labour still point to a tight market. Overall wage escalation continues to increase, although signs of near-term activity starting to moderate should flow through to wages from late 2024.
However, for those on enterprise bargaining agreements, escalation is heading in the other direction, due to a still-strong activity pipeline but also in part due to sub-par numbers of trades coming through vocational education. Recent and forthcoming EBA renewals – both in markets where EBAs are commonplace but also in newer, smaller markets where they have been less prominent – will push escalation for those on an EBA up to 5% through 2025; an increasingly wide margin vs. overall wage escalation in the sector.
While the infrastructure sector is not immune to issues emanating from sub-par investment, elevated strength and complexity of the pipeline is an ongoing challenge, especially in major transport projects but increasingly so in renewables. Despite the pipeline of major road projects starting to slow, major rail will continue to see new large projects coming to market. This will see escalation strengthen in 2025 and remain elevated in 2026 across most markets.
Key points to escalation outlook by market
Sydney – Escalation to remain stubborn, with increased unionisation of trades, the ongoing impact of recent regulation, and concerns about loss of skills to Brisbane and South East Queensland. The infrastructure pipeline is still significant but there is potential for further cuts in the next state budget.
Melbourne – Some escalation softness in coming years sits in contrast to the strength of fundamental drivers, which should reassert themselves by 2026 and push escalation higher. Increasing concerns of debt profile could see public cuts ahead, which could see escalation soften further.
Brisbane – Continued market tightness, a strong pipeline, and shortages of key trades drive the outlook (and that of other major states). The upcoming state election is likely to play a key role in policy direction (BPIC) and in obviating current uncertainty around Olympics-related construction.
Adelaide – A solid pipeline of (mostly public) major projects to keep escalation elevated in the building sector. However, the potentially very strong infrastructure outlook (across major transport, utilities and renewables) could lift cost pressures state (and industry) wide.
Perth – The potential for markedly higher escalation in Perth appears set to be realised. This could come both from fundamental drivers and impacted industry capability, as well as the trend of greater unionisation and a lack of depth in the Tier 1 contractor market.
Hobart – With key building and infrastructure projects increasingly likely to proceed, already-elevated building activity could lead to significant escalation. Some uncertainty around the magnitude of renewables investments may see the escalation outlook soften.
Canberra – There are increasing concerns regarding the pipeline in the commercial sector, which could weigh on the escalation outlook in building, although activity in the social sector is still expected to pick up some slack. Infrastructure is likely to remain elevated led by a pipeline of major/complex projects (requiring a higher percentage of FIFO trades).
About WT
WT empowers clients to grow, inspiring confidence through independent cost management and advisory services. Operating for nearly 75 years, WT’s expertise spans the building, construction, infrastructure and defence sectors. The firm supports clients with an award-winning team of specialists in cost management, quantity surveying, digital solutions, sustainability, asset and buildings, portfolio and program advisory, PMO, PPP and facilities management.
