Renewed construction growth is forecast for 2025 (+8%) and 2026 (+10%) as the prospect of a recovering market lifts consumer and business confidence, according to Glenigan’s UK Construction Industry Forecast 2025-2026.
Project starts have stabilised since the election, with private sector work gradually rising during the second half of 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.
Glenigan’s Economic Director, Allan Wilen said: “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.”
Private housing market activity has also 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.
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.
Consumer spending to lift industrial starts
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 floor space.
Retail and hospitality revival
Meanwhile, 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. Investment by the deep discount supermarkets, Aldi and Lidl, is set to be a bright spot within the sector over the forecast period, as plans to substantially expand their estates boost growth.
Rising household incomes are also 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.
The office sector has been affected by high interest rates and reduced demand 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.
In October, Technology Secretary Peter Kyle announced a £6.3 billion investment in data infrastructure. With the rapid advancement of AI, demand for data centres is expected to keep rising, boosting overall sector activity in the latter part of the forecast period. 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.
