There’s been plenty of conversation about the growing demand for data centres in Australia. As advisors to businesses in the building sector, one development we’re following is the impact this is having on the construction industry.

While for some it’s creating new opportunities, it’s also putting pressure on an already stretched workforce. But this isn’t just a labour shortage story; it’s part of a broader shift in the direction of construction activity across Australia, and which businesses stand to benefit.

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Data Centres Are Increasing the Competition for Skilled Labour

According to The Powering Skills Organisation (PSO), Australia’s data centre boom is driving a labour shortage that threatens the residential construction sector, at a time when the industry is already dealing with trade shortfalls.

Data centres require large teams of specialist contractors. With substantial investment behind these developments, they can present lucrative opportunities for tradespeople, most notably electricians.

For residential builders, this creates a challenge. They’re no longer competing solely with other housing developers for skilled workers in an already stretched labour market. They’re now competing with major infrastructure projects that may offer longer contracts, consistent workloads, and more attractive pay.

The Broader Shift Towards Non-Residential Construction

The growth of data centres is just one example of a wider change taking place across Australia’s construction industry. In the latest Global Construction Monitor from the Royal Institution of Chartered Surveyors (RICS), figures show that Australia’s residential construction sector is weakening while infrastructure and non-residential construction are showing stronger activity.

Skilled labour shortages and elevated material costs were identified as key factors holding back residential construction activity, while worsening payment delays are placing further pressure on businesses’ cash flow. For residential builders, this creates a particularly challenging environment.

On the other hand, commercial builders and specialist contractors may find themselves well-positioned to benefit. Businesses with experience in electrical infrastructure, mechanical services, and complex commercial projects could find new avenues for growth as demand for these facilities continues.

However, the opportunity depends on having the workforce, financial capacity, and operational systems to take on those projects.

Who Absorbs the Rising Cost of Construction?

This raises an important question: when a project becomes more expensive, who pays for it? For builders and contractors, absorbing every increase in labour rates or material costs is rarely sustainable.

Builders tendering new work must consider:

• Reviewing labour assumptions: Ensuring subcontractor rates and labour allowances reflect current market conditions.
• Allowing for project contingencies: Accounting for foreseeable cost pressures and potential delays without relying on unrealistic margins.
• Understanding contractual risk: Identifying which costs can be passed on through variations, and which remain the contractor’s responsibility.
• Being selective with tenders: Avoiding projects where competitive pricing leaves no room to manage delivery risks.

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Higher tender prices may be necessary to maintain profitable margins, but they also need to be commercially justified.

Builders who understand their true project costs will be in a stronger position to price work confidently and avoid taking on projects that appear profitable on paper but deliver little return.

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New Opportunities Require a Different Approach to Growth

For commercial builders and contractors, the shift towards non-residential construction presents a genuine opportunity to diversify their project pipeline. But winning larger contracts isn’t necessarily the same as building a more profitable business.

Major commercial projects can involve longer payment cycles, higher upfront costs, more complex contractual obligations or greater reliance on subcontractors.

A business moving into this space needs to consider whether it has sufficient working capital to fund project delivery. There is also the question of capacity. Taking on additional work may require investment in equipment, recruitment, compliance and project management. Without the right financial planning, what seems like growth at first can actually just create more liabilities.

That’s why we always advise our clients considering new opportunities, whether in construction or any other industry, that the priority should be understanding what aligns with their capabilities, and how their financial and operational strategies may need to adapt to support growth. Learn more in our article on the cost of saying ‘yes’ to everything.

What This All Means for Australian Construction Businesses

Australia’s data centre boom won’t be the last development that changes the construction industry, but it is a timely reminder of how quickly shifts in demand can create both challenges and opportunities for businesses.

For residential builders, the immediate priority is maintaining access to skilled trades while protecting margins from increasing costs. For commercial builders and contractors, changing demand could open up new opportunities, provided growth strategies are carefully considered.

In either case, the businesses best positioned to navigate this shift will be those making decisions based on accurate financial information and operational insights.

At The Co., we work with clients in Melbourne’s building industry to improve financial visibility and make informed decisions with growth in mind. Get in touch with our Business Advisory and Construction Accounting team if you need guidance on navigating changing market conditions.