UK Construction Perspective 2025

• Capital planning within an uncertain landscape - Construction faces a complex environment in 2025 with indicators of both stabilisation & cost constraints, requiring longer-term capital plans to mitigate risks to construction projects.

• Material costs stabilising, yet inflation remains - Despite material prices stabilisation in 2023-2024, costs remain high and labour market constraints continue to impact tender prices.

• Sector driven recovery for regional construction - Regional activity recovery remains varied, with recent UK investment and policy announcement providing further confidence in regional construction.

The UK construction market faces an uncertain outlook, as it sees significant pulls and shifts from both national and global forces. Although 2024 brought welcome stabilization in both inflation and interest rates, a lack of growth continues stemming from a complex interplay of factors: persistent inflationary pressures on material costs, the lingering effects of high interest rates on financing, and political and economic uncertainty leading to investment hesitancy.

This report provides insights from JLL Cost Management Advisory and JLL Research on key trends influencing construction projects in the UK in 2025 and beyond. To engage an expert to navigate uncertainty in capital planning and project programmes, contact JLL’s Cost Management Advisory team, or download the detailed report.

Despite a challenging environment, JLL anticipates construction sector confidence in 2025 will remain positive, benefitting from early indicators of improved market activity across regions and recent announcements of investment in key sectors such as residential and industrial. Current forecasts anticipate stabilisation of construction output to continue throughout 2025-2026, although economic volatility increases the uncertainty of this outlook.

Construction materials have been more exposed to inflation and cost increases than average goods and services in 2020-2024, which has contributed to the upward of upward movement of the Tender Price Index since 2019. While material inflation has now stabilised, costs remain high.

JLL forecasts anticipate further increases in TPI over the next few years, with a 2.50% increase forecast for 2025 and 3.0% in 2026. This is driven by likely continued inflation, potential supply disruption from global trade uncertainty and increase in labour costs as Government policy on employer NIC and wage increases have pushed up contractor labour costs.

Construction firm insolvencies have remained a pressing concern in UK construction, largely stemming from substantial price increases and pre-pandemic commercial commitments made before the volatility of 2020-2022.

Recent reports show that construction sector insolvencies remain lower in y-o-y comparisons but remains at risk as economic uncertainty may influence pricing and TPI, increasing risks for supply chain insolvencies.

Moving forward, careful allocation of contract risk is essential to minimize exposure to inflation driven by unpredictable global factors. At the project level, thorough due diligence during procurement becomes critical to prevent program disruptions and wasted costs. Effective mitigation strategies should include comprehensive expression of interest processes and pre-qualification procedures with rigorous assessment of financial standing, including scrutiny of outstanding claims that might impact contractor viability.

Following significant period of prices increases, construction material costs have stabilised with smaller price movements seen between 2023-2024. Some materials including glass, cement and steel saw small decreases in prices in 2024, but overall prices remain elevated compared to 2019 levels and likely to remain here into the future.

Looking forward to 2025 and 2026, materials costs are increasingly exposed to risks from global economic and political events, as US trade policy and global conflicts may affect products reliant on global supply chains and shipping routes.

The UK's construction market activity for residential and non-residential sectors was estimated at approx. £160 billion in 2024, with the residential sector comprising 55% share of total activity.

Residential and non-residential sectors have seen construction sector economic activity recover in recent years, to near pre-pandemic levels¹. This recovery remains nuanced however, with some sectors still struggling to regain pre-pandemic levels, and continued inflation impacting prices and construction values.

Housing construction activity showed earlier recovery than the non-residential sector, but slowed in 2023 and 2024. The commercial sector shows a slower recovery, with office and industrial sectors seeing low to moderate growth.

Against a backdrop of economic uncertainty and constrained labour markets, understanding regional and sector-specific project pipelines has become essential for effective project planning and cost management.

While UK construction has seen overall recovery since the 2020 pandemic and economic downturn, regional recovery shows a more varied picture as sector-driven construction drives activity.

In 2024 the South and Midlands saw continued recovery, driven by an increase in commercial office sector recovery from RTO increases, and continued in-country migration outside London to connected hubs of Birmingham and Bristol. Downturn in North England is related to a return to normal levels of construction for warehouses, following the post-pandemic surge.

JLL expects to see investment in the residential and industrial sectors from the recent UK spending review to benefit the North of England.

JLL outlook on leasing in the commercial sector indicates continued demand for offices, with increased demand for high-quality Grade A space in major cities such as Manchester, Birmingham and Leeds, while continued supply constraints in the London market will likely catalyse the retrofit market. 

• Construction activity recovery will continue to be sector and regionally driven in 2025 and 2026. Understanding regional and sector market trends and investment pipelines is vital to manage long-term project and capital plans. JLL PDS Cost Management teams have regional and national knowledge and expertise to manage and plan for changes in supply chains, labour and project timeframes.

• Uncertainty will shape the outlook for project costs in 2025, and shift focus to local sourcing strategies. Engage with JLL PDS expert teams to closely monitor supply chains on projects to ensure risks are mitigated in material sourcing, while JLL experts can advise on NZC and circular economy strategies to adapt and reuse existing materials, reducing pressure on material resources.

• Labour market constraints are likely to be further heightened by increased labour costs and availability across all regions in 2025 and 2026. To address reduced availability in the labour market, construction projects may benefit from use of AI and innovative MMC strategies, particularly off-site modular construction where appropriate.

For more detail on economic and construction activity indicators, regional insights and JLL viewpoints, download the full report here.