Construction 2026: The major trends and market shifts shaping construction in 2026
According to Coates’s latest Construction report, 2026 will be a year of moderate but sustained recovery for the Australian construction industry.
“Led by several major shifts, including the transition from a transport-driven cycle to a utilities-driven cycle, this recovery phase will lay the foundation for strong growth throughout the second half of the decade,” says James Lawrence, Group Manager – Customer & Markets at Coates.
“From late FY26 to FY27, Australia’s total construction activity will average over $300 billion per annum, with engineering construction accounting for almost half of construction spend.”
Coates’s market outlook examines these major shifts to help business leaders and project managers plan and to safeguard project timelines, budgets and delivery outcomes.
The big shifts in 2026
Transitioning to a utilities and defence-driven cycle
According to Coates’s findings, as the nation’s transport infrastructure pipeline peaks and begins to ease during FY26, utilities and defence will move to become the primary drivers for the construction industry.
“After more than a decade, Australia’s transport-led boom will give way to a surge of construction activity in utilities and defence, predominantly led by water projects, utilities, transmission, power generation and base expansion programs,” says James. “During this cycle, private capital will accelerate growth in electricity generation and mining resources, as public sector funding pivots toward water, health and telecommunications.”
Utilities construction is set to increase 6.2% in FY26, led by water (+15.7%) and electricity (+4.5%) amid decarbonisation of the grid, significant transmission investments and large-scale renewable generators, particularly in eastern states.
Renewable energy generation and transmission is a key growth sector in 2026
Defence outlays trend higher into the 2030s with expansions across bases, ports and manufacturing programs. “Timing remains opaque though due to limited public information, making scheduling and capacity allocation more challenging,” says James.
Engineering construction to remain higher for longer
Engineering construction is forecast to rise 6.5% to close to $150 billion from FY26 to FY27. This growth is expected to peak at approximately $153 billion and remain elevated through FY30.
“Building on persistent growth over the past 5 years, the sustained strength of engineering construction will underpin the Australian construction industry for the remainder of 2026, even as building and non-residential sectors experience mixed results,” says James.
Residential construction remains flat through FY26 and is anticipated to accelerate from FY27 as structural undersupply, policy tailwinds and higher rental yields support an upturn. Non-residential construction, meanwhile, is set to experience a temporary pullback, with a projected flattening in commercial and industrial activity through FY26.
”High interest rates, constrained private investment and a shrinking pipeline of new projects are key drivers of this slowdown. However, sustained public sector spending will continue to support growth in social and institutional construction, particularly in education, healthcare and defence,” says James.
Data centres emerge as a growth engine
Datacentre development is one of Australia’s strongest non-residential construction drivers in 2026, driven by surging demand for cloud services and AI workloads. With total investment value approaching $100 billion, this growth is expected to offset weakness in traditional commercial and industrial construction and provide a stable demand pipeline through 2026 and beyond.
According to Macromonitor1, construction commencements for data centres in Australia grew 52% in 2024/25 and are projected to rise a further 10% in 2025/26. National capacity is forecast to reach 2,800MW in 2025/26 – more than 250% increase since 2020 – and is on track to exceed 5,000MW by 2029/30.
Surging demand for cloud services and AI workloads is driving significant growth in data centre construction
“Western Sydney remains the epicentre of data‑centre builds, with Melbourne catching up,” says James. “This expansion is triggering new challenges in power, transmission and water availability, as well as intensifying competition for skilled labour. Grid instability, in particular, could become a significant constraint on the construction outlook.”
Changing regional profile for construction
Distinct regional changes will continue to shape the construction industry in 2026, with activity in Queensland and Western Australia outpacing Victoria and New South Wales.
“This surge in construction activity is largely attributed to public investment, major projects in water and health, and Olympics-related infrastructure,” says James. “WA and Queensland also have a significant renewable energy pipeline, helping Australia to deliver on the required six-fold increase2 in capacity over the next five years.”
Further fuelling this shift, by the end of the decade WA is forecast to surpass NSW as the leading state for engineering construction, boosted by several State Government-backed infrastructure projects and renewed interest in critical minerals.
The relocation of major projects away from metro areas is another major change that will shape construction in 2026. “Driven by strong investment, regional and remote areas will continue to attract major projects, particularly in Queensland and WA,” says James. “As well as diversifying regional economies, this shift is needed to deliver on demand for renewable energy, defence and water infrastructure.”
How can equipment hire help industry grow productivity in 2026?
Coates promotes the many strategic advantages that help construction businesses navigate major market shifts.
“Flexibility, speed and sustainability are critical success factors in the next cycle,” says James. “By providing flexible hire equipment, site and specialist solutions, Coates helps customers to plan ahead, adapt to changing market conditions, meet sustainability standards and keep projects to budget and schedule.”
- Cost control in a changing market: By converting CapEx to OpEx, Hiring helps preserve balance sheet flexibility and avoid upfront costs and loan repayments. “Hire creates a predictable cost structure, frees up capital and eliminates depreciation, maintenance and insurance costs,” says James.
- Access to the latest equipment without capex: Productivity remains a significant challenge for construction. To combat this, equipment hire provides access to a modern, efficient fleet that supports performance. Customers can also refresh equipment as standards and site needs evolve.
- Scalable solutions for remote and regional projects: Coates’ nationwide branch network and strong regional presence makes mobilisation much faster and easier for construction businesses. Customers also benefit from turnkey site solutions and dedicated Major Project Managers.
- Reduced risk and complexity: Equipment hire transfers the responsibility for maintenance, servicing and compliance to the hire provider – an approach that brings peace of mind by reducing the risk of downtime and stabilising project delivery when schedules are tight.
- Meeting sustainability targets: Hire provides access to hybrid, battery-electric and low-emission equipment options. “Coates’ range helps customers meet their sustainability targets,” says James. “As decarbonisation accelerates investment in generation, transmission and storage, we expect strong demand for temporary power, HVAC and site solutions.”
- Data centre readiness: To support data centre construction, Coates provides reliable temporary power and cooling solutions that align with commissioning sequences, preventing failure of heat-generating equipment and ensuring continual operation of critical hardware.
“Coates provides comprehensive equipment and site solutions that help customers to retain competitive edge in a shifting construction landscape,” says James. “To realise the many benefits of equipment hire, we encourage project leaders to engage early and plan collaboratively for FY26–FY30 programs.”