THE CONSTRUCTION MARKET

Output low, orders weak, but pockets of opportunity

The direction of travel for the UK construction industry is not consistent across sectors. While headline output figures point to a weak market, major infrastructure programmes, energy projects, data centres and other strategic investments continue to generate significant demand. Organisations should not assume national construction trends reflect the conditions affecting their projects. Capacity and pricing pressures are increasingly determined by sector, geography and programme-specific demand.

Understanding the UK's increasingly uneven construction market

Headline output figures suggest a challenging environment for UK construction, but beneath the surface a more complex picture is emerging. Overall activity remains subdued (Figure 2), but major programmes and sector-specific investment continue to generate significant demand and localised pressure.

Total new work output rose by 0.4% in Q2 2026. Despite this recent improvement, output was 6.1% lower than a year ago due to substantial decreases earlier in the period, led by housing. The construction market has shown volatility between quarters and sectors.

In Q2 2026, private commercial work and infrastructure activity rose by 2.0% and 1.9% respectively, making them the strongest performing sectors. Private housing also recorded modest growth of 1.1%. These areas of growth were offset by falls in public housing, public non-housing work (including schools and hospitals) and private industrial construction.

While some sectors are now showing short-term growth or stabilisation, lasting recovery will rely on higher housing delivery, stronger investor confidence, and continued progress on major programmes.

The industry did not experience the impact of the conflict in the Middle East as sharply as some had anticipated, despite concerns that it could mirror conditions similar to those seen in 2022 following the start of the conflict in Ukraine. Lower output levels have helped to limit inflationary pressures arising from the conflict; however, greater volatility has made forecasting more intricate and detailed, prompting closer examination of project viability and key drivers of value.

Source: ONS

Local conditions matter more than national trends. Capacity, labour availability and pricing pressures are increasingly determined by sector, region and the presence of major programmes.

Looking ahead

As a result of reduced market confidence and tough viability conditions, new orders in the construction industry have reduced by 18.1% over the past year and have fallen below the long-run average (Figure 3). This indicates that construction output is likely to continue to face pressure. There are some encouraging signs; private industrial new orders increased by 33.1%, and private new housing rose by 12.9%.

Source: ONS

The latest forecast from the Construction Products Association (CPA) suggests that future growth in new work output is expected to stay muted, with growth of just 1.6% expected in 2027 (Figure 4). Infrastructure is projected to be the primary driver of growth in the UK construction sector, supported by strategic transport initiatives, energy generation projects and grid upgrades.

Source: Construction Products association

Beyond returns, towards growth

Traditionally, two main sectors have driven the UK construction market: commercial office space and residential development. The combined influences of Brexit, COVID-19, evolving real estate usage, affordability challenges and shifting investor sentiment have weakened these areas. As a result, demand and viability are increasingly out of sync; the market wants better buildings but delivering them is becoming increasingly difficult and costly.

At the same time, government support, combined with the push towards net zero and a green economy, has accelerated growth in other areas. Sectors such as infrastructure and industrial have emerged as significant markets because of either workload volume, or speed of growth.

Funding and viability are shaping the market. Projects supported by long-term investment drivers and secure funding continue to progress, while viability remains a challenge in parts of the commercial and residential sectors.

Investment continues where fundamentals remain strong

Despite subdued activity across parts of the commercial and residential sectors, investment continues to flow into major programmes. These programmes are generally driven by strong long-term demand rather than relatively short-term returns driven by rents, yields, or sales prices. The projects succeeding in today's market aren’t necessarily the cheapest, but the best prepared with funding certainty, clear objectives, mature design information, proactive supply-chain engagement and realistic procurement strategies. Projects that demonstrate these characteristics continue to secure funding, attract contractor interest and move forward despite challenging market conditions.

Investor confidence in UK infrastructure reached its highest level since 2023 in Q2 2026 - according to the Global Infrastructure Investor Association (GIIA) - driven by accountability and investment reforms, and the National Infrastructure and Service Transformation Authority (NISTA) pipeline. These changes have made the UK more attractive than some other European markets, aligning with investors’ preference for predictable regulation, clear pipelines, and planning certainty.

Other sectors are responding to real demands for expansion. The sports and venues sector is being strengthened by stadium developments to expand capacity and create new commercial opportunities. Universities need to upgrade their estates to compete at a global level to attract higher fee-paying international students. Data centres, gigafactories and warehousing all offer significant pockets of growth.

For clients the important consideration is not whether the UK construction market is growing, but whether their project sits within a sector where demand and contractor interest remain strong.

"Across the UK, a growing pipeline of proposed stadium developments reflects a wider transformation in sport and entertainment.

Contemporary stadium developments are focused on generating more revenue to meet the increasing financial pressures in sport. Expanding capacity, enhancing hospitality spaces and creating new commercial opportunities have a direct impact on sporting competitiveness.

Venues are now expected to host concerts, conferences, community events, and experiences throughout the year. They have become year-round destinations, generating employment and economic activity far beyond the football season.

These projects are often complicated, outsized for their local market, and have an impact far beyond their site boundary."

Paul Mitchell, Director, UK

Caution defines the contracting market

Domestic and international uncertainty has created a highly selective and risk-averse contracting market. As a result of our in-depth conversations with sub-contractors, most prioritised improving margins rather than growing revenue. This is consistent with the strong risk aversion and the terms that contractors are willing to accept (Figure 5).

This focus on improving margins has been driven by concerns over market stability. Analysis by EY Parthenon found in H1 2026 eight profit warnings were issued by listed housebuilders matching levels seen in H1 2008 and marks the highest total since in H1 2020. Leading causes for these warnings included policy change and geopolitical uncertainty, increases in costs and overheads and delayed or cancelled contracts.

Despite these concerns, construction insolvencies in the UK have fallen in the year to date, when compared to the same period in 2025, although the total is on course to remain higher than pre-pandemic levels (Figure 6). This may explain why our sub-contractor survey found that insolvencies within the supply chain were not the primary challenge currently being faced by sub-contractors. Instead, they were more concerned about difficult contractual legal conditions, quality of design information and red tape, bureaucracy and delayed approvals (Figure 7).

Source: Turner & Townsend Subcontractor survey

Project readiness and deliverability create competitive advantage. Better design information, greater scope certainty, and balanced risk allocation attract stronger contractor engagement and more predictable outcomes.

Source: Insolvency Service

Source: Turner & Townsend Subcontractor survey