Finding construction’s next growth driver

THE local construction industry has weathered several shifts in demand, from the scaling back of mega projects after Pakatan Harapan took power in 2018 to the revival of infrastructure spending and, more recently, the data centre (DC) boom.

With developers racing to complete DC projects, the current wave of activity continues to support contractors and building-material suppliers, including cement producers.

But what happens when this wave subsides?

Tighter scrutiny of DCs’ electricity and water requirements could prompt developers to defer new investments or consider alternative locations, raising questions about the industry’s next growth driver.

Signs of moderation appear to be emerging. Going by the advance estimate of gross domestic product for the third quarter of financial year 2026, the construction sector grew 6% year-on-year, down from 6.5% in the preceding quarter.

This marked the seventh consecutive quarter of slower growth, following double-digit expansion in 2024 and 2025.

Looking ahead, the East Coast Rail Link is expected to begin commercial operations on its first phase, from Kota Baru to Gombak, by year-end.

The second phase, linking Gombak to Port Klang, is targeted to begin operations in January 2028.

The property market offers little immediate relief, with unsold completed homes and weak take-up weighing on developers’ appetite for new launches.

Other projects in the pipeline include ongoing work on the Penang Mutiara Line Light Rail Transit, water infrastructure upgrades and investments to strengthen the national power grid.

Further ahead, projects such as the Mass Rapid Transit Line 3 (Circle Line) and works related to the Johor Baru-Singapore Rapid Transit System Link could provide additional construction demand, although the timing of project implementation and contract awards will be key.

If new project awards slow, smaller contractors facing tight cash flow and rising financing and operating costs could come under greater pressure to service their borrowings while meeting ongoing project commitments.