Industry Changes We Can Expect for the Remainder of 2025

Our Opinion

The second half of 2025 will be shaped by a period of restrained demand coupled with strong public infrastructure activity that is providing stability across the sector. Residential and commercial development remain subdued, but a combination of lower inflation, easing labour constraints, and an active government pipeline is setting the groundwork for recovery in 2026.

Activity Trends

Construction activity in the March 2025 quarter was largely flat. Residential work increased by 2.6 percent, indicating a small stabilisation after steep declines in 2023 and 2024. Non-residential activity fell by 3.9 percent over the same period, with Auckland recording the sharpest decline due to weak private development and a slowdown in commercial projects.

Overall volumes remain around 25 percent below the 2022 peak, confirming that the sector is still well below capacity. Economists at Oxford Economics project a 4.3 percent decline in total work put in place for 2025, which is a downgrade from their earlier forecast of negative 3.9 percent. Westpac analysts believe the downturn has bottomed out, with construction activity expected to remain broadly stable through the rest of the year as mortgage rates ease slightly and some confidence returns to the housing market.

Sector Sentiment and Confidence

Sentiment across the industry remains cautious. BDO’s Construction Sector Report 2025 highlights that only 37 percent of sector leaders are currently positive about economic conditions. Concerns around cashflow, political uncertainty, and growth remain the dominant themes.

However, the same report shows that outlook improves when firms look six months ahead, with 60 percent expecting stronger performance and 67 percent expressing optimism about future conditions. This suggests that while 2025 will remain difficult, businesses are beginning to prepare for a turning point in 2026. The Government’s recently announced Investment Boost initiative is seen as a potential catalyst for productive asset investment, particularly in infrastructure and education.

Cost Dynamics

Construction cost inflation has cooled significantly. Rider Levett Bucknall’s June 2025 forecast reported a 0.2 percent quarterly increase in non-residential costs and an annual increase of just 1.8 percent. This is the lowest rate recorded since 2013. Spare capacity in the market and improved access to labour are contributing to this moderation.

CostConsultants’ June 2025 report recorded similar trends in the residential sector. Building cost inflation is essentially flat, with annual figures of 1.2 percent for residential projects and 1.7 percent for non-residential projects. This stability provides more predictability in pricing and helps contractors and clients manage budgets with greater confidence than in the previous three years.

Labour Market Conditions

The workforce has stabilised following several years of acute shortages. Filled jobs in construction are down by around 6 percent compared to 2024, representing a net loss of about 12,000 positions. However, this reduction in demand has alleviated the labour crunch that previously drove up wages and delayed projects.

Industry surveys show that more than half of firms now report staffing levels as sufficient.

Demand for specialist roles such as site managers, quantity surveyors, and façade installers remains high, but general labour availability has improved. Wage escalation has eased, and firms are now better able to plan and deliver projects without the extreme labour volatility experienced earlier in the decade.

Infrastructure Pipeline

Public sector investment continues to be the key stabiliser for the industry. Te Waihanga’s March 2025 snapshot shows a total infrastructure pipeline of NZD 206.9 billion, with NZD 111.6 billion of projects backed by funding and NZD 46.7 billion already under construction.

In 2025, NZD 16.6 billion is scheduled to be spent on infrastructure, with a further NZD 15.5 billion planned for 2026. Major projects include a NZD 10.4 billion transport upgrade in Canterbury and a NZD 13.8 billion water infrastructure plan for Auckland. These projects are expected to maintain workloads for contractors despite weakness in private sector demand.

Research and Markets anticipates the overall industry output will contract by about 1 percent in real terms in 2025, primarily due to falling consents and lingering cost pressures. However, they forecast a return to growth from 2026 onwards, driven by these major public sector investments in transport, health, and education.

Outlook for the Rest of 2025

The remainder of the year is expected to be characterised by stability rather than growth. Residential building will likely remain shallow but stable, with signs of recovery dependent on further easing of mortgage rates. Non-residential construction is likely to continue softening, particularly in Auckland, until private investment regains momentum.

Costs are expected to remain contained as supply chains have normalised and labour markets are more balanced. Tender pricing will remain competitive as firms seek to secure pipeline work. Business confidence is still fragile, but the positive shift in outlook suggests that companies are preparing for an improvement in 2026.

Infrastructure remains the backbone of sector activity. Contractors should continue to target government-backed projects where cash flow and certainty are stronger than in the private market.

Conclusion

The trajectory for the remainder of 2025 is one of cautious stability. Private sector demand will remain weak, but inflationary pressures have abated, labour availability has improved, and government infrastructure projects provide significant ballast. The sector is not yet in recovery, but conditions are far less volatile than in the previous two years. Firms that position themselves strategically now will be better placed to benefit from the upturn expected in 2026.

Sources

• Oxford Economics, Construction Outlook Q2 2025

• Westpac, NZ Building Work Put in Place – March Quarter 2025

• Rider Levett Bucknall, Forecast Report 112 – Q2 2025

• CostConsultants, Market Report June 2025

• BDO, Construction Sector Report 2025

• Te Waihanga, National Infrastructure Pipeline Snapshot March 2025

• Research and Markets, New Zealand Construction Market Forecast 2025–2029