Ed Griffiths, Head of Business and Client Analytics at Barbour ABI, discusses how 2025 was a mixed year for construction, with modest growth driven by a few high-value projects amid
workforce, planning, and economic challenges. Looking ahead, RM&I work is set to dominate over new builds, while caution, delays, and affordability pressures will shape 2026.
2025 was another mixed year for the construction industry. Contract award values (as of November 2025) were slightly higher than in 2024, but were powered by a smaller number of high-value
projects rather than a broad level of work across the industry.
Project delays, the ageing workforce, declining planning application numbers, and limited government support for the industry point to another uncertain year ahead in 2026. We are also entering a decade in which Repair, Maintenance, and Improvement (RM&I) work is expected to dominate over new construction projects.
Macro-economic factors ending 2025
In November 2025, unemployment reached 5%, the highest level since 2020. While the base rate has steadily fallen to 4% (and is expected to drop further to 3.5% in 2026), this stability hasn’t provided enough easing to offset the absence of government support for the industry.
Affordability constraints, coupled with slower sales of new homes, have dented confidence, especially for housebuilders. Last year, in this piece we questioned the likelihood of Labour hitting their 1.5 million homes target. One year on, with housebuilding rates lower across 2025 than they were in 2024, that target now appears all but impossible.
Policy interventions aimed at improving standards have also come with unintended costs. The Future Homes Standard has added further expense to housebuilding, while the Building Safety Levy has introduced both additional financial burden and significant delays throughout the delivery chain.
With no fresh stimulus on the horizon, we can expect increasing caution from the market about where their limited resources are deployed. Unfortunately, insolvencies are also expected to rise further.
Another growing concern is the retiring workforce. Between 2019 and 2025, the construction workforce declined by 16.4%, an unsustainable rate of decline. Apprenticeship opportunities remain far
too few and are compounded by a high dropout rate of 47%.
One bright spot is that those who remain in the industry may benefit financially from reduced competition and increased demand for their labour.
What to expect in 2026 – The shift to RM&I
What was once seen as a post-pandemic blip towards RM&I now looks to be a confirmed long-term trend.
As the chart shows (Fig 1), since 2020, new construction work has flattened, while RM&I workloads have grown and remained resilient. Several factors underpin this shift.
Firstly, financing costs and project delays have made large-scale developments less viable than previously.
Developers’ margins are being squeezed by material costs and labour shortages. In contrast, RM&I work is far less sensitive to financing conditions, making it a safer commercial proposition.
Policy driving towards net-zero also mean a funnelling of work into retrofitting existing assets. The need to upgrade housing stock, improve energy efficiency, and decarbonise sits
alongside falling confidence in affordability and house sale rates, suggests a move away from speculative new-build projects.
In the public sector, RM&I budgets continue to flow, particularly for schools, hospitals, and local authority housing, whereas new-build projects face far greater budget scrutiny and delays.
Smaller projects of course mean smaller margins, but they should also mean steadier income streams and less volatility exposure.
Firms may become less reliant on large development pipelines and instead focus on fostering smaller, localised supply chains.
An interesting area to watch will be whether Tier 1 Contractors choose to embrace the emergence of long-term asset management models and service-based recurring revenue, as opposed to relying on large-scale, but risky and small-margin projects.
The final constraints to look out for in 2026 are approval delays and the continuing decrease of planning applications submitted.
As shown on the below chart (Fig 2), in residential construction, the time from planning application to approval has risen continuously since the Building Safety Act was implemented in 2022. These delays are likely undermining confidence, discouraging businesses from submitting plans for new projects while they remain tied up with delayed developments.
2025 saw fewer planning applications than any of the previous six years, with final tallies expected to land between -9% and -5% year on year.
Conclusion
Overall, I broadly agree with most industry forecasts for the next two to three years: growth in the region of 1–5% is achievable if the right conditions are in place. Any predictions of more than 10% growth in the overall construction market are, frankly, unrealistic given current constraints.
The Labour Government has admirable objectives – accelerating housing supply, driving net-zero investment, boosting renewables, delivering major infrastructure, expanding manufacturing capacity, and improving construction productivity. It remains to be seen whether they can create the environment necessary for these goals to be realistically achieved.
