Construction Industry Forecast 2025 – 2026
Yesterday, Glenigan published its Construction Industry Forecast for the period 2025 to 2026. According to Glenigan, a positive forecast can be expected, with opportunity for both private and public sectors which construction industry professionals will be pleased to hear. One headline forecast was an 8% increase on project starts in 2025, followed by a 10% rise in 2026. Below, we summarise the forecast by providing an overview of what can be expected in key areas:
Economic Background
As we know, construction follows the economy, and Glenigan reports that the economy is now expected to turn a corner and grow and gather in strength. This has been assisted by an early election, which allowed the decks to be cleared, public sector projects to be re-appraised and led to a budget providing a clear road map for future spending (although it’s on infrastructure other than roads!)
Higher government spending and a recovery in consumer spending due to lower inflation and easing interest rates have been the key drivers to kick starting the economy for growth.
In Summary
In summary:
- Private Housing: This witnessed a stabilisation in 2024, with growth expected in 2025 and 2026. This has been down to a number of factors – namely steeply declining mortgage interest rates leading to more mortgage approvals, and an increasing number of buyers who are proceeding with purchases in the belief that property prices are only likely to go up. Nevertheless, it is thought that house purchases still remain subdued and that there is further pent up demand given that economic considerations have deterred potential purchasers for some years. Moving forward it is thought that there will be slower mortgage rate declines together with slower house price growth, but that growth will continue at a steady rate. There is also continued government support behind increasing housing stock with a pledge to create £1.5m new homes. Interestingly, Glenigan reported that the private sector has never achieved the number of new homes planned, and therefore the Government might need to reappraise this.
- Social Housing: Growth will be driven by increased government funding and new policies. This year saw a 15% dip in project values, thought to be down in part to the implementation of the Building Safety Act creating approval delays. Next year, social housing is forecast to pick up with a renewed interest from the private sector intent upon cherry picking purpose built student accommodation projects to replace aging accommodation.
- Industrial: the industrial sector is expected to move to recovery from 2025, driven by a demand for logistics and manufacturing space activated by on-line retail.
- Offices: with work from home in decline after major UK employers mandated a return to the office, office space and accommodation to fit the demands of a changed workforce returns to the agenda with a recovery anticipated in 2025-2026. It is forecast that demand will focus upon office refurbishment and smaller more collaborative workplaces. This is also supported by a demand for high-quality, sustainable office spaces.
- Retail: the retail sector is forecast to see continued growth in 2025 and 2026, led by supermarkets and shops now resuming their investment plans followed renewed confidence in public spending. Given the sector still struggles against the convenience of on-line shopping, its growth is unlikely to return to pre-pandemic levels however.
- Hotel & Leisure: Historically there has been a stockpiling of projects due to funding and consumer confidence issues. However, this sector is now forecast to see a rebound in 2025 with further growth expected, driven by rising disposable incomes and tourism.
- Education: Since 2023 there has been a steady growth in school building projects, driven by “at risk buildings” and the need to address issues with RAAC (Reinforced Autoclaved Aerated Concrete). This growth is thought to carry through into the forecast reference period 2025 – 2026 and this is supported by the Government announcing its expectation that 100 new school projects shall commence. University projects, on the other hand may struggle due to finance issues
- Health: Previous years saw projects put on ice due to an NHS struggling with industrial unrest and increasing waiting lists. However, a small increase in projects is forecast, with more detailed information expected after the release of the Government’s Detailed Spending Review. It is expected that spend will concentrate upon primary care in an effort to relieve pressure on hospitals.
- Civil Engineering: New priorities were set by the new Government after the election, but early indications are that rail investment will be prioritised over road, save for fixing potholes, and there will be greater investment in the renewable energy and energy distribution networks.
- It is noteworthy that not only did the Government make a commitment to capital expenditure in the budget, but mention must also be given to the creation of a new National Infrastructure and Service Transformation Authority (NISTA) to revitalise the UK’s infrastructure systems and assist the Government’s ambitious plans for a decade of national growth. The vision is for NISTA to streamline strategy and reduce delays and bottlenecks. NISTRA will be supported by a new Land Use Framework and a Planning and Infrastructure Bill, which is due in 2025.
Key Recommendations for Construction Companies moving forward
Key Recommendations for Construction Companies moving forward
With recent years witnessing major construction players going bust, notwithstanding a positive construction forecast, Glenigan still cautions companies to take robust measures to protect their business; suggesting:
- Targeting New Growth Areas: Focus on emerging opportunities in warehousing, logistics, office refurbishments, and repurposing commercial premises.
- Factoring in Supply-Side Constraints: Stay alert to material availability and potential supply interruptions.
- Mitigating Risk: Diversify client base and supply chains to reduce financial and contractual risks.
- On-Site Efficiency and Collaborative Working: Invest in offsite manufacturing and digital tools to improve efficiency and reduce labour demands.
- Adopting Digital Solutions and Processes: Embrace digital tools to cut costs, improve efficiency, and enhance profitability.
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