UK construction enters 2026 cautiously, as new data signals recovery following a challenging and disruptive year.
The UK construction sector endured a difficult 2025, marked by falling activity, weakened confidence and delayed investment decisions. However, new analysis from Glenigan suggests the industry may be approaching a turning point. The January edition of Glenigan’s Construction Review provides a detailed assessment of year-on-year construction performance and outlines why 2026 could represent a recovery phase for UK construction.
Covering both major projects valued above £100 million and underlying projects below £100 million, with all figures seasonally adjusted, the report offers a comprehensive view of construction sector trends. While the headline results confirm a disappointing year, emerging pipeline strength and improved policy clarity are supporting cautious optimism across the digital construction and built environment sectors.
UK construction performance in 2025
Despite an improvement in activity during Q4 2025, the year as a whole underperformed. The value of projects starting on site fell by 20% compared with 2024 levels. Detailed planning approvals declined by 8%, while main contract awards dropped by 11%, reinforcing the scale of the slowdown.
These figures reflect a prolonged period of economic uncertainty. High interest rates throughout much of 2025 increased financing costs for developers, contractors and subcontractors. Weak investor confidence, persistent cost pressures and policy uncertainty between the Spring Spending Review and the Autumn Budget Statement compounded the challenges.
Although some resilience was evident in Industrial, Office and Hotel & Leisure construction, these gains were insufficient to offset declines across most construction verticals.
Fragile confidence and economic sensitivity
Commenting on the findings, Allan Wilen, Economics Director at Glenigan, highlighted the sector’s vulnerability to economic shocks. He said: “Once again, it feels like the industry has been stuck in a vicious cycle where any established momentum, as we saw in the residential market in the spring, suddenly vanishes sometimes due to the tiniest twitch upon a thread.”
Wilen added that relatively minor issues were having an outsized impact on confidence and activity, underlining the continued fragility of both the UK and global economy.
Signs of stabilisation heading into 2026
Despite weak headline performance, Glenigan’s data points to improving conditions. Non-residential construction has shown renewed strength, supported by clearer funding commitments announced in the Chancellor’s Autumn Statement.
“Despite these poor results, we’re starting to see stability return, particularly a surge in Non-Residential work,” Wilen explained. He noted that greater certainty around capital funding could accelerate planning approvals, contract awards and project starts, unlocking private investment and supporting consumer confidence.
This renewed momentum is already evident in rising Office and Industrial construction activity, suggesting that the UK construction industry is positioned for gradual recovery rather than continued decline.
Office and industrial construction lead the recovery
Office and Industrial construction were the strongest-performing verticals in late 2025. Office project starts increased by 32% year-on-year, while Industrial starts rose by 31%. Growth in Industrial construction was driven by manufacturing, warehouse and logistics developments, with notable regional performance in Yorkshire & The Humber, the South East and Wales.
Although Industrial planning approvals fell by 37% and contract awards declined slightly, a 12% growth forecast for 2026 reflects improved demand and the commencement of major schemes, including the £1.4 billion Cable Factory at Hunterston in Scotland.
Office construction benefited from new build and refurbishment projects, alongside rising demand for data centres driven by digital transformation, artificial intelligence and cloud infrastructure. A 13% increase is forecast for 2026, supported by the Government’s Tech Prosperity Deal and its £30 billion commitment to an AI Growth Zone in the North East.
Hotel, leisure and community projects show resilience
Hotel and Leisure construction delivered a notable surprise in 2025, with project starts rising by 12%. Indoor leisure facilities and sports infrastructure recorded significant year-on-year increases, while the South West, West Midlands and Wales performed strongly across starts and planning approvals.
A more moderate 5% growth is forecast for 2026, supported by rising tourism and major developments such as the £450 million hotel scheme at 380 Kensington High Street, London.
Community and Amenity construction also performed well, with project starts increasing by 68%. However, activity in this sector is expected to decline by 16% in 2026 as funding pressures persist.
Civils construction pipeline strength
Civils construction experienced the largest fall in project starts during 2025, down 56% year-on-year. However, underlying pipeline indicators were more positive. Detailed planning approvals increased by 90%, and main contract awards edged up by 1%, suggesting conditions are in place for future recovery.
Roads, harbours and ports accounted for the majority of growth, while electricity networks, renewables and water investment programmes are forecast to drive a 17% increase in Civils activity during 2026.
Housing, retail, health and education outlook
Housing construction struggled following the April tax duty increase and prolonged high inflation. However, a 6% recovery is forecast for 2026, supported by recent interest rate cuts and the Social and Affordable Homes Programme.
Retail construction remained subdued amid low consumer confidence and rising employment costs, resulting in a flat outlook for 2026. Health and Education construction both declined sharply in 2025 but are expected to return to growth as funding allocations improve.
While challenges persist, clearer funding, easing interest rates and strengthening pipelines indicate UK construction can stabilise, rebuild confidence and progress into sustained, investment-led growth during 2026 nationally.
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