Green shoots of positivity but economic pressures create concern

The 2025 BDO Construction Sector Report shows construction business leaders continue to face similar pressures to 2024, with some new problem areas emerging. While economic factors remain the metric leaders feel least positive about, business growth and cash flow have now entered the top five issues for business leaders. However, there are areas of strength for the industry, with most leaders feeling positive about regulations and compliance, systems and technology and risk management.

Leading issues for construction business leaders

In 2024, construction business leaders were feeling least positive about economic factors, adapting to new technologies (including AI), political factors, climate risk management and workload. Our 2025 report shows the first three of these remain leading issues, with the addition of business growth and cash flow to round out the top five concerns.

It may come as no surprise that construction business leaders are feeling less positive about economic and political factors than they are other metrics. Government project cancellations and ongoing geopolitical tensions have impacted the sector, along with New Zealand’s challenging economic conditions over the last year. Meanwhile, the threat – and opportunity – of AI continues to impact a wide range of sectors, and construction businesses may be grappling not just with how to maximise its impact, but also what it might mean for their business into the future.

Growing pains

Just 45% of construction business leaders felt positive about their business growth in the two weeks before our survey, moving it into the top five issues for leaders in the sector. Macroeconomic conditions will be playing a role here, along with a decline in forward work beyond 12 months. Business growth is a major concern for New Zealand leaders in all sectors, as identified in the May 2025 BDO Business Wellbeing Index.

Construction business leaders who are looking to grow their business may be buoyed by the Government’s recent Investment Boost announcement, which provides a tax incentive to invest in productive new assets. Business leaders will also be hoping for a stronger forward work position to help them achieve their growth ambitions.

Cash flow concerns

Cash flow appears to be a concern for the sector, with just 47% of survey respondents feeling positive about their cash flow all or most of the time in two weeks before our survey. Workloads may be a contributing factor to this.

According to Stats NZ, the value of New Zealand building work put in place in the year ended December 2024 was down 6.4% compared to 2023, with a downward trend in building activity since the post-Covid building boom of 2022. Less activity in the market means fewer jobs for construction firms and less money to put back into the business, making it challenging for some parts of the sector to ‘keep the lights on’ and pay their staff. However, it’s reassuring to see slightly more positivity among construction business leaders regarding their financial performance, suggesting that stronger balance sheets might be keeping some businesses out of more financial trouble.

Business performance sentiment: Current vs future

“The last financial year wasn't good, and we are starting from behind financially this year, so we have to do a bit of catch-up cash flow-wise”

Survey respondent

Forward work falls back

Construction business leaders’ forward work position is likely contributing to their cash flow concerns. Just 41% have sufficient confirmed work beyond 12 months - a slight decline from 2024 - and more than a quarter only have enough work to cover the next six months or less.

In addition to cash flow problems, a constrained pipeline of work can also create staffing challenges. Businesses must carefully consider their staffing numbers, attracting and retaining quality people while ensuring there is enough work to pay them.

Although the Government has taken steps to alleviate some of these market pressures and stimulate infrastructure and construction activity – notably through the Investment Boost, the New Zealand Infrastructure Investment Summit and building consent changes, some business leaders continue to feel the impact of cuts and delays to building and construction projects over the past two years.

[A significant challenge is…] ensuring our employees are on jobs to reach their contracted hours

Survey respondent

Profit margins improve slightly, with more hope for the future

While there are clear challenges within the sector, our survey also reveals areas of positivity. Although just 47% of business leaders are currently feeling positive about their cash flow, this jumps to 60% when considering expectations for six months’ time – suggesting leaders may be expecting more jobs to come in or costs to ease later this year.

Meanwhile, more construction business leaders reported increased profit margins in the past twelve months than they did in our 2024 survey, although this is still relatively low at 31%. Encouragingly, the future expectations for profit margin growth are higher, with 37% expecting to see improved margins in the next year. The flipside of this is that one quarter of business leaders predict their profit margins to fall during the same period, highlighting the uncertain and inconsistent state of the sector.

Looking at the factors expected to impact profitability over the coming months, it’s clear macroeconomic pressures are causing financial concern. Our survey shows 49% of business leaders expect interest rates to have a significant impact on their profitability over the next 12 months, closely followed by inflation (47%). While these figures are high, they do show an improvement versus 2024, when 67% of construction leaders expected inflation to significantly impact their profitability. Interest rates and inflation have reduced considerably since our survey last year, but these economic improvements are still trickling through to businesses and consumers.

Stable staffing levels, but quality concerns continue

Staffing levels seem to have stabilised, with businesses no longer facing the labour crisis that plagued the industry in previous years. Most survey respondents (57%) say that current staff levels meet their needs, and just under a third expect to be actively looking for staff in the next 12 months.

Despite improvement in staffing levels, there are lingering concerns around quality and retention of staff. When asked what their greatest challenges or concerns are over the next year, the majority of survey respondents mentioned staff – whether that’s finding good workers, retaining them or keeping morale high.

While staffing poses a challenge for construction business leaders, they’re less concerned about the effects of immigration policy on profit margins. Only 7% of survey respondents expect immigration policy to impact their profitability over the next 12 months. This could be attributed to relatively lower forward work levels or recent changes to the Accredited Employer Work Visa, including the reduction of the domestic workforce threshold for labour hire employers in certain construction roles.

For businesses to achieve growth as the market improves, staffing volumes and quality become even more essential. Firms could use any down time they have currently to analyse their talent pool, upskill existing team members and understand what skills they might need to take the next step forward.

[A key issue is] keeping skilled people in our industry from leaving overseas

Survey respondent

A variety of challenges on construction leaders’ minds

One of the key outtakes from the 2025 BDO Construction Sector Report is the sheer variety of issues emerging throughout New Zealand’s construction sector. When asked to comment on their greatest challenges and concerns over the coming year, respondents pointed to everything from compliance concerns, geopolitical and AI worries through to not having enough work – and some even having too much work. The range of responses reflects the ‘uneven’ nature of the construction industry at present; some regions, roles and subsectors are thriving, while others are finding it as challenging as ever.

Despite the huge volume of reported challenges, some clear themes did emerge across the survey demographic.

Below are some of the comments made by construction business leaders on their primary concerns for the coming year:

“Managing staff levels to meet demand”
“International tension affecting trade and decision making/growth”
“Project delays due to regulatory issues (i.e. start dates on site being delayed)”
“Improving our AI knowledge”
“Availability of skilled experienced senior staff”
“Political uncertainty regarding capital spend by Government agencies (health, education)”

GREATEST CHALLENGES FOR BUSINESS LEADERS OVER THE NEXT 12 MONTHS

Greatest challenges for business leaders over the next 12 months

Where to from here?

The construction sector is in a state of flux. Conflicting market forces are adding uncertainty around the wider economic outlook, although falling interest rates and inflation will have a further role to play in stimulating confidence and helping the sector to recover further. Some reports suggest we may be nearing a turning point. Total building volume (seasonally adjusted) was flat in the March 2025 quarter compared to the December quarter, while the MBIE National Construction Pipeline Report 2024 forecasts strong growth in activity in 2026 and beyond.

Growth will be back on the agenda for construction business leaders over the coming months and years. Positively, the BDO Construction Sector Report shows business leaders have found it less difficult to access finance than in 2024. In our 2025 survey, 29% of business leaders said it was more difficult to access finance in the last 12 months, compared to 44% in 2024. This suggests that although cash flow may be tight for some businesses, there could be more financial support available to seek out opportunities and develop businesses in the future.

With such changeable conditions and challenges, it’s essential for construction business leaders to work with advisers who know their business, their market and their operating environment.