Private non-residential construction capital expenditure

IBISWorld forecasts private non-residential construction capital expenditure to fall by 0.7% in 2025-26, to total $137.4 billion. The persistence of high interest rates is the major cause of weakening investment in non-residential construction. A post-pandemic surge in commercial construction drove high rates of investment despite rising interest rates. However, in 2025-26, the persistence of elevated interest rates is starting to kick in as the high cost of borrowing is placing downwards pressure on investment, particularly in the commercial construction sector. The RBA lifted interest rates by 0.25% in February 2026 as a lift in household spending and investment caused inflation to pick up in the second half of 2025. At the same time, falling commodity prices have hurt mining investment, which has contributed to this downwards 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 mining-related construction projects.

Investment grew strongly in 2021-22 and 2022-23, as workers returned to in-person working arrangements and bricks-and-mortar retail quickly rebounded. These heavy rebounds moderated the impact of a steep rise in the cash rate to curb inflation, particularly during the 2022 calendar year. As the uncertainty around the pandemic receded, investment flooded into key commercial construction projects, which offset the impact of consistent rate rises during the 2022 and 2023 calendar years. Interest rates have stayed elevated, which is gradually impacting the investment environment as the other factors fuelling investment growth also start to slow. Overall, IBISWorld expects private non-residential construction capital expenditure to rise at a compound annual rate of 3.3% over the five years through 2025-26.