Glenigan Forecasts Renewed Momentum for Construction 2025 

GLENIGAN‘s UK Construction Industry Forecast 2025-2026 anticipates construction project starts will continue to strengthen as UK economic growth gathers momentum.

Renewed construction growth is forecast for 2025 (+8%) and 2026 (+10%) as the prospect of a recovering market lifts consumer and business confidence, boosting the industry.

Renewed Momentum

Recovery is forecast for 2025 and 2026. Project starts have stabilised since the election, and private sector work has gradually risen during H2 2024.

Firm development pipelines are pulling through, with main contract awards standing 7% up on 2023 figures, supporting a renewed rise in industrial and office starts as investor confidence improves.

Allan Wilen, Glenigan Economic Director

Commenting on the Forecast, Glenigan’s Economic Director Allan Wilen says, “The construction sector is on track for growth from 2025, fuelled by a combination of improved consumer confidence, increased household spending, and strategic fiscal changes announced in the recent Budget. These factors are set to drive activity in consumer-related verticals such as private housing, retail, and hotel & leisure.

“The Budget’s adjustments to fiscal rules, allowing for higher levels of capital investment, will also unlock significant public sector and infrastructure projects, providing a much-needed boost to government-funded initiatives over the next two years.”

Housing Starts on the Up

Private housing market activity has stabilised during the second half of 2024 thanks to a brighter economic outlook and improvement in household incomes.

This may prompt buyers to take advantage of reasonable house prices, helping to support further recovery during 2025 (+13%) and 2026 (+15%) as housebuilders respond to improved consumer confidence and strengthening property transactions.

While housing approvals have been on a downward trend for most of 2024, government planning reforms are anticipated to reverse this trend, paving the way for an uptick in new approvals and housing developments over the forecast period.

Additionally, the Budget’s £3 billion support package for SMEs and the build-to-rent sector should provide a boost to new and smaller developers, further lifting the overall housing supply.

Help for Social Housing

Greater cost stability and increased government funding have helped housing associations increase their development activity.

However, a drop in student accommodation projects has dampened overall sector starts this year, causing an estimated fallback in project starts of 15%.

This is likely a short-term setback, and new government policies are anticipated to increase development activity over the next two years, including an extra £500 million funding for the Affordable Homes Programme. The Government is also reducing the discounts on right-to-buy sales, with local authorities able to retain full earnings from council house sales to fund new social housing.

In a reversal of fortunes, student accommodation is forecast to expand, driven by easing interest rates and rising demand for purpose-built developments as buy-to-let investors leave the market.

All this will help lift social housing starts, with 11% growth forecast for 2025, and 11% for 2026.

Industrial

Industrial starts, which enjoyed a strong rebound post-pandemic, fell back sharply in 2023 and weakened further in 2024.

Nonetheless, industrial starts are forecast to return to growth over the next two years. A stronger economic outlook is expected to drive online retail, encouraging a demand revival for premises next year with a 5% predicted growth in 2025, and 8% in 2026.

Although planning approvals fell back this year, there is a strong pool of previously approved projects that developers and investors can take forward over the next two years, in response to the resurging demand for industrial floorspace.

Retail

The retail construction sector has faced significant challenges, including weak consumer demand, rising costs, and the ongoing shift toward online sales. These factors have contributed to a substantial decline in project start values and detailed planning approvals in recent years.

However, a revival in consumer spending is anticipated to support a gradual recovery in the sector. Project-starts are expected to see steady growth, with Glenigan forecasting a 14% increase in the near term, followed by a 1% rise in 2025, and 9% in 2026.

Hotel & Leisure

Rising household incomes is expected to boost discretionary spending on hospitality and leisure, attracting investors and driving project starts. Additionally, the introduction of lower business rate multipliers for retail, hospitality, and leisure properties in 2026-27 will reduce operational costs, further stimulating growth in hotel and leisure construction.

As such, Glenigan forecasts growth of 19% in 2024, 6% in 2025, and 9% in 2026.

Office

The sector has been affected by high interest rates and reduced demand for office spaces this year, resulting in a predicted decline of nearly a quarter (-21%) in 2024.

Nevertheless, the sector, which also includes data centres, is expected to benefit over the forecast period from a rise in refurbishment and extension projects, as hybrid working remains an important driver for landlords and occupiers to accommodate changing working patterns.

Additionally, regulatory changes and the subsequent demand for premium ‘green’ office space are set to support a continued rise in retrofit and redevelopment projects.

These opportunities for the sector are predicted to drive growth over the forecast period, 18% in 2025, and 4% in 2026.

Civil Engineering

Civil engineering project starts have rebounded strongly this year (+26%) after a 6% decline in 2023. Underlying work (projects valued <£100m) has influenced this figure, despite the cancellation of several major infrastructure projects.

Civil engineering is set for steady growth, driven by utilities projects such as water company investments and the expansion of fibre-optic broadband. Proposed plans to double water industry capital investment to £96 billion for AMP8, including reservoirs and river quality improvements, are expected to significantly boost the sector, even if some proposals are scaled back by regulators.

Energy investment is set to grow, focusing on renewable energy projects like offshore wind farms, onshore wind, and solar PV, alongside grid enhancements for Net Zero goals. Infrastructure starts are also expected to rise by 5% in 2025, supported by £500 million in road repair funding and key rail projects such as the HS2 Euston tunnel, the TransPennine upgrade, and the East-West rail link. The Spending Review will clarify funding and timelines for these developments.

Overall, Glenigan is forecasting a 5% rise in sector activity in 2025, and a further 7% in 2026.

Health

Health starts rebounded by 11% this year, reversing the 8% decline during 2023 as NHS resources were redirected toward addressing long waiting lists and resolving industrial unrest.

While the NHS remains a high priority for the government, a 17% decline in detailed planning approvals during the first nine months of 2024 may limit new projects in the near term.

However, increased funding should boost healthcare projects over the forecast period.

The Chancellor has announced a 15% increase in NHS capital funding for 2025/26 to address building maintenance, RAAC repairs as well new diagnostic equipment. This increase is expected to support a modest rise in project starts in 2025 (+1%), alongside continued progress on the New Hospital Programme.

Sector growth is expected to strengthen in 2026 (+10%), with the government’s long-term spending plans to be outlined in the spring Spending Review.

Education

The education sector is forecast to grow by 5% next year, then stabilise in 2026. School building projects will likely remain the sector’s main driver, supported by a 22% capital budget increase in 2025/26, including an additional £500 million for the School Rebuilding Programme.

Growth is expected to be maintained in 2026, with a possible increase in demand for secondary school facilities if private school enrolment decreases due to new VAT on fees. This could drive new construction and upgrades for secondary school buildings to meet increased demand.

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