_A Shifting National Landscape for Development in 2026

Australia’s development and construction landscape is heading into 2026 with cautious momentum, but the outlook remains uneven. Conditions vary sharply by location and asset type, and for clients considering new development or major capital works, strategy and selectivity are becoming increasingly important.

Nationally, this is not a story of broad-based slowdown, but of activity being shaped by higher delivery costs, labour constraints and shifting demand. While some markets are benefitting from population growth and infrastructure investment, others are finding it harder for projects to secure a green light.

For those pursuing development, refurbishment or major projects in 2026, the priority will be disciplined planning; testing feasibility early, managing risk from the outset, and tailoring delivery approaches to local conditions.

Construction Costs on the Rise

One of the most consistent challenges across the country is that construction costs have continued to rise across all major asset classes. In many cases, they are now outpacing achievable returns, making projects harder to justify than they were even two years ago.

Where double-digit development margins were once more common, many proposals are now being repriced, redesigned or paused altogether as feasibility tightens.

Labour shortages in particular continue to apply pressure nationally, but the impact is most pronounced in markets where infrastructure investment is drawing heavily on contractor capacity.

Queensland is a clear example, with major infrastructure builds continuing and a long runway toward the Brisbane 2032 Olympic Games, competition for skilled labour remains intense. This is flowing through to the broader real estate sector, driving up the costs associated with typical commercial and residential projects.

Western Australia is experiencing similar dynamics. A booming resources sector continues to absorb labour supply, creating ongoing constraints for traditional development activity and contributing to escalating delivery costs across the state.

In this context, project success hinges on early planning, realistic procurement strategies and a strong understanding of market capacity.

Development of Residential Assets

Despite construction challenges, one area showing renewed momentum is medium-to-large scale residential apartment development, particularly in New South Wales.

Housing supply remains structurally short across the state, and planning reform is beginning to unlock new project pipelines. Since the NSW Government introduced the Housing Delivery Authority (HDA) process to fast-track housing approvals, hundreds of applications have been lodged over the past 12 months, whilst success rates are still to be determined but hover around 50%.

While feasibility remains sensitive to build costs, the combination of sustained demand and accelerated planning pathways is supporting an uplift in activity.

In contrast, Melbourne’s development environment remains more subdued than other east coast capitals.

The city continues to lag in activity levels, influenced in part by the longer disruption of COVID era lockdowns. Many clients remain cautious, with return-to-office mandates still uneven across sectors and broader economic growth signals weaker than in competing markets.

As a result, decision-making around major real estate projects is taking longer, and some capital is remaining on the sidelines. While opportunities exist, particularly in repositioning and targeted precinct-based work, Melbourne is not yet seeing the same development momentum evident in other major cities.

Industrial Pipeline for Development Slowing

After several years of exceptionally strong development conditions, the industrial pipeline for new construction is finally slowing in both Sydney and Melbourne.

In Melbourne’s east, there is now a meaningful volume of existing warehouse stock available, including more than a dozen facilities above 10,000 square metres currently on the market. This growing supply is contributing to a more balanced phase for the sector.

Smaller industrial assets under 5,000 square metres remain in demand in Sydney, though the volume of stock delivered during the boom is now easing the need for further new builds.

Ultimately, this is a market being reshaped by scarcity not only of land, but labour and deliverable supply. As development pipelines tighten and costs remain high, the assets and projects that can be delivered with certainty will become increasingly valuable over the medium term. For those prepared to take a long-term view, 2026 presents a window to secure the right opportunities ahead of the next supply-constrained upswing.

Read the full Australian Horizon Report for more insights on the outlook of the commercial property market this year