New Zealand construction cost inflation is forecast to recover through 2026, with Rider Levett Bucknall projecting a peak just above 4 percent in the second half of 2026 before easing back toward 3.2 percent over the longer term. RLB’s Forecast 114, covering the fourth quarter of 2025, put non residential cost inflation stabilising and reaching around 1.6 percent by the end of 2026 and exceeding 3 percent by 2029.
The direction is consistent across both readings even where the exact figures differ: costs are currently subdued, and they are going up. For anyone with a fitout or refurbishment in planning, that has an obvious implication about timing, and a less obvious one about how you write the contract.
Where the market currently sits
| Indicator | Position | Source |
|---|---|---|
| Forecast peak inflation | Just above 4 percent, H2 2026 | RLB commentary |
| Longer term easing | Toward 3.2 percent | RLB commentary |
| Non residential inflation, end 2026 | Around 1.6 percent | RLB Forecast 114, Q4 2025 |
| Forecast by 2029 | Exceeding 3 percent | RLB Forecast 114 |
| 2026 tender price forecast revision | Reduced by 1.3 percent | RLB Global Annual Report 2026 |
| RLB Crane Index | Fell from 147 to 129 points, down 12.1 percent | RLB Crane Index |
| Long term cranes, main centres | 116 in Q3 2025 to 102 in Q4 2025 | RLB Crane Index |
| National infrastructure pipeline | Around $268b | Published pipeline data |
For historical context, construction costs rose 17.3 percent across 2022 and 2023, then around 5 percent in 2023 to 2024, before slowing to the current subdued rate. The recovery now forecast is a return toward normal rather than a repeat of the post pandemic spike.
The recovery is currently residential led. Non residential demand remains weak, with healthcare and retail construction both declining.
Conditional forecast: RLB’s projections explicitly assume geopolitical disruption to shipping, including the Strait of Hormuz, resolves. Treat the numbers as conditional rather than settled, particularly for imported materials.
Why tender prices and construction costs are not the same thing
This distinction matters more than any single forecast number and is frequently confused.
Construction cost is what it actually costs to build: materials, labour, plant, preliminaries and compliance.
Tender price is what a contractor is prepared to charge, which is construction cost plus whatever margin the market will bear. In a busy market margin expands. In a quiet market it compresses, and some contractors will tender at or below cost simply to keep teams together.
New Zealand currently has soft tender pricing driven by low volume rather than by falling input costs. The RLB Crane Index, a proxy for work in the ground, has fallen 12.1 percent. When volume returns, tender prices can move upward faster than the underlying cost index as margin normalises.
This is precisely the mechanism that catches out projects budgeted during a downturn and delivered during a recovery. The budget was set against a distressed tender price, and the project is built against a normal one.
What is driving costs underneath
Labour. The skilled trade pool has tightened through a net outflow to Australia, which pays more for the same trades. This is a persistent structural pressure and it affects fitout disproportionately, because fitout is labour intensive and finish quality dependent.
Imported materials and logistics. New Zealand imports a high proportion of finishes, hardware, glazed systems, mechanical plant and specialist lighting. Freight, exchange rates and international supply conditions feed straight into fitout budgets, and the RLB forecast is explicitly conditional on shipping disruption resolving.
Compliance. Consenting, fire engineering and sustainability requirements add cost and time. The building system reform programme should ease some of this, but the near term effect is neutral at best.
Contractor capacity and financial stability. With construction insolvencies elevated, the market’s effective capacity is lower than headline contractor numbers suggest. When demand returns, a reduced supply of financially sound contractors will support pricing.
What this means for your budget
If you can bring a project forward, there is a real case for doing so. Pricing is competitive now and forecast to rise through the second half of 2026. A project priced and contracted in the current market secures conditions the forecast says will not persist.
Do not budget a 2028 project on 2026 tender prices. Apply an escalation allowance reflecting the forecast trajectory, not current market softness.
Separate escalation from contingency. Escalation is a known, forecastable cost of time. Contingency is for unknowns. Conflating them means one of the two is under provisioned, and in a rising market it is almost always escalation.
Calculate escalation to the midpoint of construction, not to the start date. Costs continue rising during the build.
Interrogate abnormally low tenders. In a soft market with elevated insolvency, a price well below the others is not automatically a saving. Compare the preliminaries and the programme allowance, not just the headline number.
Where the opportunity sits
A soft construction market coinciding with elevated secondary office vacancy creates a specific window for asset owners. The cost of upgrading a building to attract occupiers is lower now than it is forecast to be, and occupier demand is concentrating on higher quality space, so the assets most in need of repositioning are also the ones with the strongest case for investment.
The counterargument is real. Capital is expensive and leasing risk on secondary stock is elevated. But the timing question deserves modelling rather than a default to delay, because delay is not cost neutral when escalation is forecast to accelerate.
The companion question, once you have decided to proceed, is how to protect the budget you have set. That is covered separately in our guide to mitigating cost escalation on fitout projects.
Frequently asked questions
What is the construction cost escalation rate in New Zealand for 2026? RLB projects a peak just above 4 percent in the second half of 2026, easing back toward 3.2 percent over the longer term. RLB’s Forecast 114 projected non residential cost inflation reaching around 1.6 percent by the end of 2026 and exceeding 3 percent by 2029. Both readings point to costs rising from a currently subdued base.
Are construction costs falling in New Zealand? Cost inflation has slowed to very low levels rather than costs falling. Tender prices have softened more than underlying costs because contractors are competing hard for reduced volume. RLB reduced its 2026 New Zealand tender price forecast by 1.3 percent.
What escalation allowance should I include in a fitout budget? That depends on your start date and duration, and a quantity surveyor should set the figure for your specific project. The principles are to calculate from budget date to the midpoint of construction, to reflect the forecast trajectory rather than current market softness, and to keep escalation as a separate line from contingency.
Why is the Crane Index relevant? It counts cranes on active projects and is a widely used proxy for construction activity. A falling index, currently down 12.1 percent, indicates less work in the market, which usually means more competitive tendering and better availability of quality contractors and subcontractors.
Does escalation affect fitout differently from new build? Yes. Fitout is more labour intensive and more exposed to imported finishes and specialist systems, so it is sensitive to wage rates and exchange movements. It is less exposed to structural materials such as concrete and steel. Escalation should be assessed by trade rather than applied as a single blended rate.
Related reading
- Twelve Ways to Protect Your Fitout Budget From Cost Escalation
- Auckland Office Vacancy, Incentives and the Flight to Quality
Sources
- Rider Levett Bucknall, New Zealand Trends in Property and Construction Forecast, Report 114, Fourth Quarter 2025
- Rider Levett Bucknall, Global Annual Report 2026 and Crane Index
- Stats NZ, Capital Goods Price Index and Producers Price Index for construction
Refresh schedule: contains time sensitive forecast data. Review on publication of each new RLB forecast and at minimum every six months.
This article is general information and not financial advice. Project budgets should be set with quantity surveyor input.