CreditorWatch has reported a sharp surge in non-residential building approvals in May, driven by large data centre projects in New South Wales and Victoria. It also highlighted a fourth consecutive monthly rise in approvals for detached housing.
Analysis from CreditorWatch Chief Economist Ivan Colhoun shows a steep jump in the value of non-residential approvals, alongside early signs of a recovery in freestanding house construction. The data points to a solid near-term construction pipeline, even as conditions for residential developers remain mixed.
Non-residential approvals by value rose 41% in May, after a 23% increase in April. Colhoun linked the gains to a wave of data centre projects, reflecting heavy investment in infrastructure for artificial intelligence and digital services.
Detached housing approvals increased 2.8% month on month in May. Approvals for freestanding houses have now risen for four consecutive months, suggesting a gradual improvement in low-density housing activity despite higher interest rates and softer prices in some markets.
Apartment approvals moved in the opposite direction. Multi-unit approvals fell 10.4% in May and remained volatile, underlining the difficulty of sustaining higher-density supply even after stronger growth earlier in the year.
Across segments, the pattern points to a relatively firm outlook for total construction work over the next year to year and a half. Current approvals suggest the sector still has substantial work in the pipeline despite weaker housing turnover and recent price declines.
Policy changes also feature in CreditorWatch's assessment. Tax settings now favour construction of new dwellings for investor housing, which Colhoun expects will partly offset softer demand in the owner-occupier market and support new supply in selected projects and locations.
Non-residential work linked to technology, defence, mining and renewables is emerging as a major driver of activity. Data centres, in particular, are becoming a significant sub-sector in New South Wales and Victoria as technology firms and investors expand digital infrastructure.
Colhoun said this "AI construction boom" aligns with a broader trend of infrastructure-heavy investment in advanced computing and energy systems. The shift is influencing regional construction markets and shaping expectations for employment and materials demand.
Residential trends remain less clear-cut. Detached houses are gaining momentum, but apartments continue to swing month by month, creating uncertainty for builders, financiers and policymakers who rely on steady growth in higher-density housing to meet population needs.
Colhoun framed the approvals data as a counterpoint to recent concerns about the effect of weaker house prices on growth. Stronger non-residential activity and a stabilising detached segment reduce the immediate risk of a sharp slowdown in construction output.
He also pointed to global influences on local conditions, including movements in oil prices, shifts in financial markets related to artificial intelligence stocks and the path of United States Federal Reserve policy. These factors affect funding costs and investment decisions for large-scale projects.
"A surge in approvals to build data centres in NSW and Victoria drove a stunning rise in non-residential approvals value, up 41% in May after a 23% increase in April. There was also good news in a fourth consecutive rise in approvals to build freestanding houses (+2.8% m/m), a trend that has strengthened in recent months. Apartment approvals dropped back again in May, though this is a very volatile component of the approvals data and prior trends were quite positive. Overall, the data suggest a reasonably healthy pipeline of construction work for the next 12 to 18 months, diminishing concerns about growth from weaker house prices in recent months, though residential approvals could normally be expected to slow in the next three to six months given developments in housing turnover and prices. That said, tax changes now favour construction of new dwellings for investor housing, so that may provide some offset. Meanwhile, the AI construction boom rolls on, supported also by defence, mining and renewables construction," said Ivan Colhoun, Chief Economist, CreditorWatch.