UK Construction Perspective 2026

• Early signals of improved construction activity. Improving real estate sentiment globally and increasing investment volumes in the UK, coupled with recent and anticipated interest rate cuts, will likely benefit construction pipelines in all sectors.
  
  
• Cost pressures increasing, reflecting continued economic uncertainties. Despite optimism in the wider real estate sector, cost pressures are acute and increasing. The convergence of labour costs, increasing costs for M&E and technology in buildings, and global economic and geo political uncertainty will drive costs in 2026.
  
  
• Evolving procurement approaches and risk management. Innovative approaches to risk-sharing in projects will emerge in 2026, with many organizations exploring collaborative models such as two-stage tendering and alliancing, shifting expectations and delivery models in 2026 and onwards.

The outlook for real estate and construction is more positive for 2026, with early signals for improved construction output in 2026. Recent and expected interest rate cuts will improve construction financing options, and likely catalyse project starts.

JLL’s research points to improving real estate sentiment globally, benefitting construction pipelines in the UK. Our research also shows real investment increased in 2025 and is projected to further increase in 2026, globally and in the UK directly, benefitting construction activity.

While the Bank of England's interest rate reduction to 3.75% in November 2025 was welcomed in supporting lower financing costs and encouraging delayed projects to restart, the benefits of these rate cuts will likely only be seen in the second half of 2026 and through 2027. Industry analysts anticipate further rate cuts throughout 2026, which should continue benefiting project viability and investment decisions. However, ongoing geopolitical volatility poses a continued risk and should be closely monitored as evolving economic factors impact construction pipelines.

While overall construction activity remained subdued in 2025, shifting trends by works type showed notable changes across sectors and project types. Improvements in total construction activity in 2025 and 2024 were largely driven by increased spending on Repair & Maintenance (R&M) works and infrastructure spending. The rapid R&M growth is a feature of the broad spectrum of work it encompasses: general repairs, maintenance and light retrofit works are mainstays, as well as much of the work done to achieve embodied carbon targets and corporate ESG requirements. Accelerating spend here indicates a significant shift towards a strategic focus on existing buildings, extending functional lifespans and potential uses.

Tempering the positive outlook on investment and construction activity however is the reality of continued cost pressures within a challenging economic environment.

Project delivery costs and tender prices continued to rise in 2025, with the BCIS Tender Price Index (TPI) showing an increase of 2.52% on average in 2025, aligned to JLL’s published view from last year.

Looking forward to the next 12-24 months, JLL estimates further increases and an average TPI of 3.5% in 2026. This projection reflects insights to project pipelines and supply chains, and a view that ongoing uncertainty will contribute to continued caution amongst contractors and sub-contractors, with additional risk priced into tenders.

Projections for 2027 show slightly lower increases, as projects benefit from 2025-2026 rate cuts and inflation stabilisation. 2028 projections reflect wider estimates of construction activity increases from 2028 again, leading to potential increased competition for skilled and unskilled trades, a key driver of cost in 2028.

Increased build costs and tender prices reflect complex, interconnected drivers and ongoing uncertainty. While material costs have stabilised in recent years, and UK inflation rates (CPI) are reducing from post-pandemic peaks, build costs and tender prices are increasingly affected by broader factors such as energy and labour costs, and supply chain challenges for specialised work packages. For example, while energy costs have stabilised in recent years, they remain highly elevated, impacting site operations and products. Meanwhile, persistent labour shortages combined with national insurance increases are creating upward pressure on compensation and labour costs.

Costs for Mechanical & Electrical (M&E) works have also seen significant increases year on year, impacted by supply constraints for critical materials such as copper, increased demand for M&E equipment, and specialised skills shortages.

These complex drivers, coupled with geopolitical and economic uncertainty, continue to contribute to an environment of cautious pricing for tenders, margin protection, and risk aversion increasing overall project costs and the projected increase in TPI for 2026 and onwards.

Commercial sector

While uncertainty around pipelines and activity remains, several factors may influence increased activity in 2026. JLL research shows that strong demand for office space, with prime office rents in major UK cities expected to rise sharply (Bristol, Manchester, Birmingham, Edinburgh) driven by severe shortage of Grade A supply, with implications for investment in both existing and new buildings. Increased investment volumes are projected in 2026 further bolstering the outlook. Retail sector activity is expected to improve as physical stores see increased footfall. JLL research shows investment volumes in the retail sector increased in 2025 with projected further increases in the next 12 months.

Industrial sector

Industrial and logistics sector expects resilient performance in 2026 following market recalibration. Demand is broadening beyond traditional logistics into manufacturing and defence sectors, supported by increased government spending. ESG-compliant Grade A facilities will command rental premiums, while last-mile urban logistics expansion continues.

In response to prolonged periods of economic uncertainty and risk aversion inflating tender pricing, innovative risk-sharing approaches are emerging in construction procurement.

To improve project viability and counteract market uncertainty, the industry is shifting towards more collaborative procurement strategies. Models such as two-stage tendering, alliancing, and strategic frameworks are becoming more prevalent.

This trend is expected to accelerate through 2026 and 2027, as these approaches offer greater transparency and a more balanced allocation of risk, encouraging project commitments.

• Re-think procurement approaches to manage uncertainty. Economic and geopolitical volatility is likely to continue into 2026, with supply chain risks and contractor caution impacting tender prices. Early engagement with contractors and supply chains to explore more innovative approaches to risk sharing and procurement will benefit organisations looking to stabilise construction pipelines in 2026 and beyond to improve project viability.
  
  
• Integration of AI in project delivery. The drive for and adoption of AI across the industry has been positive and gained momentum in 2025. New technology integration can offer efficiencies and workflow improvements but early planning of technology roadmaps with project teams will offer greatest benefits. AI investment targeted at site operations is less mature as contractor margins continue to be squeezed, and unlikely to see significant investment on the ground in 2026.
  
  
• Supply constraints continue retrofit momentum. Retrofit & renovation momentum will continue in all sectors, from offices and retail through to industrial and logistics, with complex requirements for working with existing assets and structures. Engaging experts to understand both buildings constraints and local market dynamics is vital to robust ROI strategies that account for shifting cost pressures, project viability and regional market opportunities.