In terms of business sentiment, the South Island is feeling most positive about their current and future business performance (all or most of the time, in the last two weeks), followed by Wellington/Wairarapa, Auckland, and the rest of the North Island. The South Island’s positive score may in part be due to the strong economic performances of its regions; Otago, Canterbury and Tasman took out the top three spots in ASB’s Regional Economic Scoreboard for the final quarter of last year, bolstered by tourism, retail sales and the housing market.
The BDO Construction Sector Report shows a strong forward work position and some profit margin growth for the South Island, further cementing its positivity. 49% of South Island respondents have sufficient work beyond the next 12 months, and 33% say their gross profit margin has increased over the past year. This puts the South Island near the top of the pack, although Wellington/Wairarapa is also seeing strong profit margin growth.
Wellington’s positive sentiment may come as a surprise, as the region has suffered through government job cuts, slow population growth and a weak labour market in recent times. However, there is still plenty of construction activity happening. Additionally, Wellington respondents to our survey were primarily from the head contractor group, which appears to be in a more favourable position than other subsectors. Similarly, the profile of survey respondents in the ‘rest of the North Island’ category were predominantly from small businesses. While smaller businesses can be nimbler in times of change, they face greater resource constraints and it can be more challenging to remain competitive during market downturns.
Looking beyond profit margins and forward work, there are some common themes when it comes to what’s driving positivity across the regions. All areas are feeling reasonably positive about regulation and compliance obligations. The business performance metrics leaders feel least positive about across all regions are political and economic factors – although these are challenging Auckland and the rest of the North Island more than Wellington and the South Island.
The strong forward work position in the South Island is echoed in its greater need for staff, with 40% of business leaders expecting to hire staff in the next 12 months. This is in stark contrast to the rest of the North Island group, where only 23% expect to be recruiting and 19% expect to make layoffs – reflecting the poorer forward work and profit margin position in this part of the country. Auckland and Wellington are more stable, suggesting businesses are rightsizing after a few years of labour supply challenges.
However, survey respondents across the country pointed to staffing skill levels and retention as key challenges for the coming year, so it will be key for construction businesses across the country to ensure they have the right staff to meet the demands of this changing market.
As for the future leadership of businesses, most regions appear confident in their succession plans, with Auckland less certain than the other groups. Auckland and South Island leaders are also less confident in filling their vacancies in the coming 12 months, suggesting there is work to be done to ensure the right people are in place to take the business forward into the future.
“Auckland’s construction sector has proven to be resilient in recent years, and business leaders working on civil and infrastructure projects are in a reasonably positive place right now. There’s more tendering going on in the commercial subsector compared to the second half of 2024, while times are a bit tougher in the residential space. Hopefully as economic conditions improve over the next year, we’ll seen an improvement across the board. Staffing will likely become a bigger issue as the market recovers and more projects get signed up, so businesses should take measures now to attract and retain the skilled workers they’ll need in the future.”
Nick Innes-Jones, BDO National Construction Sector Leader
“While Wellington’s economy has suffered recently, many construction businesses have had a positive year. Head contractors have been busy with some big projects winding up, while ongoing earthquake strengthening work has provided a pipeline for some businesses. I’ve seen clients be very active in tendering for work, although forward work position remains something to keep an eye on. The residential market remains squeezed and new dwelling consents are down - but there is hope that interest rate cuts will flow through to support the housing market’s recovery in the near future.”
Ruth McGregor, Construction Partner - BDO Wellington
“In the Christchurch construction sector, we’re seeing the start of a recovery after a difficult 2024. Confidence and activity are up in, certainly in the residential and less so the commercial sectors, with lower interest rates and inflationary pressure helping to drive some positivity. Locally, we have high-performing agribusiness, tourism and education sectors, with lower comparable house prices to other parts of the country helping to boost demand for new housing. The BDO Construction Sector Report reflects what we’re observing on the ground in Canterbury - a solid foundation being laid for future growth.”
Martin Veitch, Construction Partner - BDO Christchurch
“Construction activity remains robust in the Queenstown Lakes District, with demand consistently outpacing supply. Many construction firms are eager to expand their workforce but face challenges in sourcing qualified personnel. Despite the Otago region performing relatively well compared to other parts of the country, wage inflation has become a notable concern. Nonetheless, industry leaders recognise the value of highly skilled employees, particularly given the favourable outlook for future projects in the area. Consequently, hiring activity is expected to persist.”
Bjorn de Nijs, Construction Partner - BDO Southern Lakes & Central Otago
