Australia: Construction Sector Coming Under Increasing Pressure As Middle East Conflict Continues

RICS Global Construction Monitor, Australia, Q1 2026

RICS has released the Q1 2026 Global Construction Monitor which is confirming that headline construction activity is remaining relatively steady with the Construction Sentiment Index moving from +7 to +8.

Importantly however the sector is also recording material cost pressures rising markedly with 12 month cost projections rising sharply across the board.

Credit conditions outlook is also deteriorating sharply with infrastructure expectations remaining a relatively bright spot.

From an Australian perspective the impact of the conflict in the Middle East is taking its toll with the Construction Sentiment Index moving from +21 to +11 with cost of materials and credit conditions moving sharply negative.

Current workloads all moved backwards with private residential moving from +16 to +3, private non-residential moving from +11 to -6 and infrastructure / public works stepping from +24 to +14.

In terms of current infrastructure workloads all categories moved down with ICT moving from +28 to +17, energy moving from +49 to +26, social construction downgrading from +21 to +8, transport moving from +26 to +13, water and waste stepping down to +14 from +28 and agribusiness moving further into negative territory recording -15 when previously -9.

Key areas such as profit margins, new business enquiries, payment delays, head count and cost of materials are all facing challenges with cost of materials posting the highest reading since this data was first captured in Australia at +86.

12 month expectations showed some resilience with private residential staying steady at +28, infrastructure/public works creeping up from +42 to +44 and headcount looked improved with +22 from +50, however private non-residential posted +8 from +31. Profit margins stayed in positive territory posting +4 from +20.

The important factors holding back activity showed a mixed bag with cost of materials moving from +52 to +77, shortage of materials moving from +27 to +49, insufficient demand edging up to +35 from +32 and financial constraints posting +56 from +52. However other factors such as competition, planning/regulation, labour shortages, weather all eased reflecting in part as Australian governments move to remove barriers for housing development through major changes to the planning and approvals systems.

In the area of skills shortages which is of significant interest to RICS there has been a slight easing off reflective of conditions but readings are still high. Building surveyors (building control surveyors) moved up slightly from +25 to +26, civil engineers moved back from +37 to +31, managers moved from significant highs of +46 to +38, quantity surveyors moved from +63 to +49 which is still a very high reading, skilled trades remained steady moving from +65 to +64 and unskilled labour recorded its highest reading since data collection started at +37.

12 month expectations for tender prices, construction costs, material costs and unskilled labour costs all moved upwards with only skilled labour costs retreating marginally from 5.62 to 5.24.

Lastly the important credit conditions indicators for past three months, next three months and next 12 months have all moved sharply negative recording -25, -31 and -39 respectively.

Vishant Narayan FRICS, RICS Australasian Board Member:

"The Australian construction sector is showing initial resilience in the face of a substantial and ongoing shock; though uncertainty remains elevated. It is noteworthy that the Australian and global construction sectors are showing immediate signs of stress particularly in relation to material costs and tightening credit conditions with private non-residential construction (which is more prone to market cycles) already moving into negative territory domestically.

This is unfolding against the backdrop of well-documented long term structural workforce challenges as outlined in the recently released Addressing Skills Shortages in Australia Report. Recent policy measures aimed at resolving these shortages — including streamlining immigration pathways, attracting more young people into the trades and surveying professions, reducing regulatory burden, accelerating planning approvals, and lifting productivity across the sector — have taken on added urgency in light of the current geopolitical environment."

The RICS Global Construction Monitor is a leading sentiment indicator trusted by policy makers and capital markets globally.

Scores are calculated on a net balance basis (the proportion of respondents reporting a rise in a variable minus those reporting a fall). Net balance data can range from -100 to +100.

The full global report may be found at this link.