Glenigan has released its UK Construction Industry Forecast for 2025-2027.
Predominantly focused on underlying starts (<£100m in value), it contains a comprehensive overview of the current state of the construction industry.
The key takeaway from the Summer Forecast, which focuses on the three years 2025-2027, is that the sector will experience a much-needed resurgence in activity, as the UK economy continues to improve and public funding for critical infrastructure is set to increase following last week’s Spending Review.
With growth predicted for 2025 (+3%), 2026 (+10%) and 2027 (+11%), these positive figures, spurred on by greater consumer and business confidence, will no doubt be welcomed industry-wide, especially following a disappointingly stagnant second half of 2024.
A reversal of fortunes
Despite the promise of renewed growth, 2025 got off to a rocky start, likely experiencing a hangover from a very disappointing 2024, which was rocked by socio-political turmoil at home and abroad.
However, as the Government found its feet over the Spring, and more certainty started to return to the markets, the prospects of renewed growth appeared increasingly likely. The main driver for this upturn has been a strengthening in domestic demand, particularly consumer spending amid heightened unease in global markets.
This is reflected in the recent uptick in underlying construction starts over the previous quarter, which is anticipated to remain stable following the various building and upgrading commitments made by the Chancellor of the Exchequer last week.
Private sector confidence finally returns
The private sector is also playing a key role in this momentum boost, with residential starts rising significantly over the last four months. This is set to increase as rising household incomes and lower interest rates lift housing market activity, reaching an +18% performance high by 2027.
Whilst recovery is set to be slower in other parts of the private sector, particularly industrial and commercial construction, Glenigan speculates these verticals will gather pace as business investment starts to unlock, in line with thawing consumer confidence.
Particularly, a spurt of new office construction, rises in retail and hotel and leisure and industrial benefitting from a greater appetite for online retailing, catalysing the construction of more warehouse and logistics facilities.
Education, health, communities and amenity and civils are all projected to benefit from increased Treasury support.
Commenting on the Forecast, Glenigan’s Economic Director, Allan Wilen, says, “It’s been a frustrating few years for the construction sector, just as there seems to be light at the end of the tunnel a new set of headwinds seems to buffer it, leading to prolonged stagnation. Yet recent events indicate we’re finally turning a corner. Consumer spending power and confidence are improving. This has supported an upturn in housing market activity and is expected to help drive private housebuilding over the next three years.
The promise of some refreshingly strategic spending from the Government will certainly send a positive signal to contractors and subcontractors nationwide with spending earmarked for a number of big and small projects presenting plenty of opportunities.”
He continues, “We should also not underestimate the mercurial nature of geopolitical events. Whilst the US tariffs have caused turmoil across the world, the UK’s relatively lighter treatment may help to renew private investors enthusiasm to put their money in our built environment. Of course, trade negotiations are ongoing and volatile, so construction businesses need to approach predicted growth with an element of caution. However, as it currently stands, the signs are positive and the industry can look forward to an extended period of increased activity.”
Taking a more detailed look at the Forecast…
Residential: Housing market set for growth
The outlook for housebuilding is extremely positive.
Private housing starts have already shown marked improvement during the first four months of 2025, bolstered by more favourable market conditions. While a brief retrenchment is anticipated in Q2, this is expected to be temporary. Encouragingly, the housing market is forecast to strengthen considerably during the latter half of 2025 and throughout 2026, driven by rising household incomes, reduced mortgage rates and improving economic conditions.
The chief catalyst for growth in this vertical registered at the start of the year, with the stamp duty increases (introduced in April) providing significant momentum to Q1 housing market activity as purchasers expedited completions ahead of the tax rise. The sector’s growth trajectory is expected to continue as consumer confidence strengthens in response to increasing real incomes and further interest rate reductions. Additionally, forthcoming planning reforms are projected to release additional development sites, providing further support to sector growth in the later stages of the forecast period.
Private non-residential verticals: A slow, yet steady, recovery
The Forecast presents a mixed bag across non-residential verticals, which have experienced a more measured recovery.
The industrial construction sector is one of the stronger performers, projected to resume growth from 2025, primarily driven by increasing demand for logistics space as rising consumer spending boosts requirements from online retailers and third-party carriers.
Meanwhile, retail construction faces a more gradual recovery path, with near-term challenges from National Insurance increases and minimum wage rises creating cost pressures for retailers. While an excess of vacant retail premises will likely constrain new developments, opportunities exist in repurposing existing spaces into mixed-use locations, with discount supermarkets Aldi and Lidl remaining notable expansion bright spots.
Hotel and leisure construction, which rebounded in 2024, faces similar labour cost challenges to retail. However, improving household finances are expected to increase discretionary consumer spending, strengthening investor confidence and driving sector growth through 2026-2027.
The office sector is forecast to return to growth as financing conditions improve. This follows a 16% decline in starts last year, amid higher borrowing costs and surplus floorspace. This has been prompted by increasing office refurbishment work, as premises are remodelled for hybrid working. Likewise, environmental performance requirements will generate demand for retrofit and new build projects throughout the forecast period.
Public sector verticals: Renewed growth across key areas
Following initial disruption from the general election and subsequent capital programme reviews, public sector construction is now positioned for sustained growth. Recent Budget commitments and the Spring Statement have established both near-term funding support and a longer-term investment framework through 2026-2027.
Education construction has demonstrated particular strength, with school building projects surging 41% in 2023 and continuing to grow through 2024, bolstered by increased Department of Education capital funding and RAAC remediation programmes. The current financial year anticipates 100 new school rebuilding projects alongside additional further education investments, though university construction faces constraints from financial pressures.
Healthcare construction has recovered from 2023 disruptions, with increased NHS capital funding for 2025/26 targeting RAAC issues and estate repair backlogs alongside technology investments.
The Spending Review’s longer-term funding commitments are expected to drive renewed growth in 2026-2027. Social housing development has benefited from greater cost stability and increased government funding, with further growth anticipated from mid-2025.
On the civils front, a raft of infrastructure projects are forecast for sustained growth over the next three years, supported by increased funding for road repairs and longer-term investment in transportation networks. The utilities sector shows particular promise, with water industry investment nearly doubling to £104 billion over five years for pollution reduction and infrastructure improvements, while renewable energy and grid enhancement projects advance under net-zero policies.
To request your copy of Glenigan’s UK Construction Industry Forecast 2025-2027 email henryr@thinktank.org.uk
