Anticipating Change in Construction 2026

The outlook for the construction industry heading into 2026 is shaped by a challenging year ahead, followed by the prospect of a significant rebound. The latest Glenigan forecast shows that overall output is expected to fall in 2025 before the market begins to revive from April 2026, when new public spending commitments are released. While the UK economy continues to recover slowly, largely due to geopolitical uncertainty and subdued investor confidence, the medium-term picture is far more optimistic. Lower interest rates, rising household incomes and an uplift in public sector investment are expected to form the backbone of growth throughout 2026 and 2027.

Despite the difficult conditions expected in 2025, the foundations for recovery are already forming. Private housing is anticipated to decline next year due to stamp duty changes and delays in Building Safety Regulator approvals, but a steady recovery is projected to begin in 2026. As confidence improves, the sector is expected to accelerate further in 2027. Social housing is forecast to stabilise in 2025 before returning to growth, supported by increased government funding and a rise in student accommodation projects. Industrial construction will dip in 2025 because of weaker manufacturing performance, yet the ever-growing demand for logistics facilities is set to drive strong expansion across 2026 and 2027.

The office market is one of the standout performers, with refurbishment, sustainability upgrades and data centre development supporting consecutive years of growth. Retail remains the most pressured sector in 2025 as businesses grapple with cost challenges and vacancies, although a recovery is expected by 2027 helped by changes to business rates. Hotel and leisure work is set to continue expanding through increased tourism and stronger consumer spending, albeit at a slower pace than recent years.

Public sector investment will heavily influence the pattern of activity, particularly from 2026 onwards. Education work is expected to fall sharply in 2025 before rebounding as the school rebuilding programme gathers pace. Health construction will also contract next year due to ongoing government reviews of major projects but is forecast to return to growth from 2026 as long term NHS funding commitments take effect. Civil engineering activity mirrors this trajectory, with a decline in 2025 followed by exceptionally strong growth as investment flows into water infrastructure, renewable energy, electricity networks and upgrades to road and rail.

Forecasts for the Republic of Ireland present a more stable picture. Overall construction output is expected to grow modestly in 2025 before strengthening considerably in 2026 and 2027. Residential starts are set to dip following a surge the previous year, while education, health and civil engineering will drive the strongest increases.

Businesses across the UK are being encouraged to prepare for growth by focusing on sectors with the greatest potential. Logistics, data centres, social housing and the office market are central areas of opportunity, particularly as planning reforms begin to unlock new land for development. Strengthening risk management and diversifying client bases will be essential, along with adopting digital tools that enhance efficiency. Labour shortages are expected to persist, making investment in training, retention and offsite methods increasingly important.

The regulatory landscape is also shifting, placing data and digital adoption at the heart of compliance. Kristina Poluyanova, Account Executive UK and Ireland for Autodesk Construction, commented: “Technology is not simply a nice to have anymore, it is becoming the only realistic way to meet new legal duties for traceability, documentation, accountability and compliance.” Poluyanova explained that 2026 will introduce new reforms such as updated fire safety standards, changes to Approved Document B, the Building Safety Levy and strengthened oversight. Poluyanova added that safety has effectively become a data problem and that disconnected processes can no longer continue in an environment where evidence and auditability are mandatory.

Poluyanova noted: “Every part of the supply chain now shares legal accountability and needs digital systems to prove compliance. While technology cannot solve every issue, its role in helping the industry meet its obligations is only going to grow.” Poluyanova emphasised that digital tools offer a major opportunity to improve project visibility, clarify data ownership and embed a culture of safety that treats change management as continuous improvement.

Alongside the regulatory and technological shifts, labour remains one of the most pressing concerns affecting the industry. Richard Leader, Associate Director at the engineering and automation recruitment specialist MoveATech, reflected on the persistent pressure on wages. Leader stated: “Unfortunately, high labour costs are likely to continue into 2026, driven by significant talent shortages.” Leader highlighted that there is little evidence of substantial government investment in apprenticeships or mid career training that would meaningfully address the gap. As a result, Leader expects manufacturers and SMEs to face continued competition for skilled workers, requiring increasingly attractive salary packages.

Despite this, Leader believes the outlook is mixed rather than uniformly negative. Leader observed: “Heading into 2026, I think there is reason for cautious optimism, although this will depend on the market.” Leader noted that housing and commercial sectors may remain subdued due to high borrowing costs, whereas areas such as engineering, infrastructure, the energy transition, utilities and data centres are positioned for much stronger expansion.

Taken together, the forecasts and expert insight point towards a challenging year ahead followed by a marked and broad-based recovery. As the industry prepares for new regulation, digital transformation and a continued shortage of skilled labour, the businesses that invest early in modernisation and resilience will be best placed to shape and benefit from the next phase of growth across the UK and Ireland.

Written by: Olivia Needham