Private Non-Residential Construction Capital Expenditure

IBISWorld forecasts private non-residential construction capital expenditure to fall by 1.6% in 2024-25, to total $120.5 billion. The persistence of high interest rates is the major cause of weakening investment in non-residential construction. Following an extended period of record low interest rates, the official cash rate was jacked up to its highest level since 2012, which has sharply increased the cost of borrowing. A post-pandemic surge in commercial construction drove high rates of investment despite rising interest rates. However, in 2024-25, the persistence of elevated interest rates is starting to kick in and the high cost of borrowing is putting downward pressure on investment, particularly in the commercial construction sector. At the same time, falling commodity prices has hurt mining investment, which has contributed to this downward trend.

Investment in non-residential construction was heavily impacted by the pandemic and the post-pandemic surge in inflation. Prior to the pandemic, growth in Australia’s labour force, rising household consumption and an increase in tourism spurred greater demand for the construction of office buildings, shopping centres and hotels. These trends were heavily disrupted by the pandemic, with many privately funded construction projects either cancelled or postponed. In the immediate aftermath of the pandemic, investment roared back, particularly for tourism related infrastructure and commercial offices. A sharp rise in commodity prices also juiced investment in construction projects related to mining.