Construcciones Yamaro: Construction in 2026: Market outlook from Coates
Coates has outlined several trends it believes will shape Australia’s construction landscape in 2026, pointing to a period of moderate but sustained recovery despite ongoing short-term pressures.
According to James Lawrence, group manager, Customer and Markets at Coates, the current recovery phase will lay the foundation for strong growth throughout the second half of the decade.
“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,” says Lawrence.
The outlook highlights structural shifts across sector demand, project types and regional activity that contractors and project teams are expected to contend with over the coming year.
Transitioning to a utilities and defence-driven cycle
As the transport infrastructure pipeline reaches its peak and begins to ease during FY26, Coates expects utilities and defence to take on a more prominent role in driving construction activity.
“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 Lawrence. “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 forecast by Coates to increase 6.2 per cent in FY26, led by water (+15.7 per cent) and electricity (+4.5 per cent), supported by grid decarbonisation, transmission investment and large-scale renewable generation projects, particularly across eastern states.
Defence investment is also expected to 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 Lawrence.
Engineering construction to remain higher for longer
Coates’ analysis indicates engineering construction will rise 6.5 per cent 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 Lawrence.
Residential construction is expected by Coates to remain relatively flat through FY26, before accelerating from FY27 amid structural undersupply, policy tailwinds and higher rental yields. Non-residential construction, by contrast, is projected to experience a temporary pullback, with commercial and industrial activity flattening during FY26.
“High interest rates, constrained private investment and a shrinking pipeline of new projects are key drivers of this slowdown,” says Lawrence. “However, sustained public sector spending will continue to support growth in social and institutional construction, particularly in education, healthcare and defence.”
Data centres emerge as a growth engine
Data centre development is identified by Coates as one of the strongest non-residential construction drivers in 2026, underpinned by growing demand for cloud services and AI-related 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 Macromonitor, construction commencements for data centres in Australia grew 52 per cent in 2024/25 and are projected to rise a further 10 per cent in 2025/26. National capacity is forecast to reach 2,800MW in 2025/26 – more than a 250 per cent increase since 2020 – and is on track to exceed 5,000MW by 2029/30.
“Western Sydney remains the epicentre of data‑centre builds, with Melbourne catching up,” says Lawrence. “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
Coates also points to a shifting regional distribution of construction activity, with Queensland and Western Australia expected to outpace Victoria and New South Wales in project growth.
“This surge in construction activity is largely attributed to public investment, major projects in water and health, and Olympics-related infrastructure,” says Lawrence. “WA and Queensland also have a significant renewable energy pipeline, helping Australia to deliver on the required six-fold increase in capacity over the next five years.”
By the end of the decade, Coates forecasts that WA may surpass NSW as the leading state for engineering construction, supported by state government-backed infrastructure programs and renewed interest in critical minerals. The relocation of major projects away from metro areas is also expected to influence construction in 2026.
“Driven by strong investment, regional and remote areas will continue to attract major projects, particularly in Queensland and WA,” says Lawrence. “As well as diversifying regional economies, this shift is needed to deliver on demand for renewable energy, defence and water infrastructure.”
Equipment hire as a strategic lever in 2026
Equipment hire can offer several advantages to help construction businesses navigate market shifts.
“Flexibility, speed and sustainability are critical success factors in the next cycle,” says Lawrence. “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
Hire converts CapEx to OpEx, preserving balance sheet flexibility and avoiding upfront costs and loan repayments.
“Hire creates a predictable cost structure, frees up capital and eliminates depreciation, maintenance and insurance costs,” says Lawrence.
Access to the latest equipment without CapEx
Productivity remains a 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 regional presence make mobilisation fast and easy 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 Lawrence. “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 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 retain a competitive edge in a shifting construction landscape,” says Lawrence. “To realise the many benefits of equipment hire, we encourage project leaders to engage early and plan collaboratively for FY26–FY30 programs.”
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