Glenigan forecasts construction boom from 2025

The Glenigan forecast predicts that construction starts are set to bounce back over the next two years, driven by a combination of increased private sector confidence and public investment.

The new report predicts a rise of 8% in underlying starts – projects valued under £100m – next year that will increase to 10% in 2026.

The growth will occur at varying rates across sectors, with eight of the 10 sectors covered by the Glenigan forecast projected to see increases of 5% or more in at least one of the next two years.

Glenigan economics director Allan Wilén comments: “A further strengthening in household incomes from 2025 is expected to benefit consumer-facing construction sectors such as private housing, retail and hotel & leisure.

“An easing in borrowing costs, improved economic conditions and greater political certainty are also expected to boost investor confidence in industrial and commercial property markets from next year.

“Public funded investment has been disrupted this year by the General Election and the subsequent post-election review of existing programmes by the new government.

The spending commitments in the Budget for 2025/26 provide greater clarity and should enable government departments to progress existing projects over the coming year.”

Housing boost

The housing sector will be a key driver of this recovery. The underlying value of project starts in the private and social housing starts will rise by double digits both next year and in 2026 according to Glenigan’s market research.

After a torrid time over the last two years, private housing starts will experience the strongest growth of the two sectors with a 13% rise increasing to 15% in the following year. “An improvement in household incomes, an initial easing in mortgage rates and a brighter economic outlook helped rebuild house purchasers’ confidence as 2024 has progressed,” says Mr Wilén.

Private residential work with planning permission and expected to begin on site over the next year includes the first plot of 328 homes in Berkeley’s Lombard Square development in Greenwich, south London (Project ID: 24158663).

Social housing starts are predicted to rise by 11% in each of the next two years after the Budget increased the Affordable Homes Programme budget for 2025/26 by £500 million to £3.1 billion.

The focus will be on schemes dominated by houses rather than flats, such as Your Housing’s £90 million Ten Acres scheme in Manchester (pictured), which has planning and is due to begin construction in the New Year (Project ID: 22197624).

Mr Wilén explains: “The decline in apartment projects commencing on site may reflect the added cost and delays associated with high rise projects following the introduction of the Building Safety Act.”

Office work rebounds

Offices is the individual sector expected to produce the biggest rise in starts as clients are reassured by a widespread return to work by staff as the Covid-19 pandemic becomes a memory.

After a 21% slump in underlying starts this year – the biggest drop of any of the 10 sectors covered by Glenigan – the bounce back in 2025 of 18% will be the strongest.

A recent increase in planning approvals allied to a rise in office lettings in the six main regional markets – Birmingham, Bristol, Edinburgh, Glasgow, Leeds, and Manchester – has boosted optimism.

“Hybrid working trends are projected to drive sector growth in 2025 and 2026, with new builds and refurbishments in demand,” says Mr Wilén.

Approved office schemes expected to begin construction next year include the £92.4 million first phase of the Mayfield Quarter development in Manchester (pictured) (Project ID: 19385575), and the £80 million St George’s House scheme in Merton, south London, being developed by M&G and Prudential (Project ID: 21216678).

Wider commercial rise

The other three key parts of the wider private commercial building sector are also showing signs of an improvement, which will increase by 2026.

After a strong period of growth this year, hotel & leisure construction starts will slow to 6% in 2025 according to Glenigan’s industry analysis and rise to 9% by the following year.

Mr Wilén explains: “The introduction of permanently lower business rates multipliers for high-street retail, hospitality, and leisure (RHL) properties in 2026-27 is likely to stimulate growth in hotel & leisure construction.”

Schemes in this sector with plans approved and due to start on site in 2025 include the £100 million Aura Hotel in Liverpool (Project ID: 17185477) and a £92.5 million apart hotel at the centre of the Blackpool Central Heritage Quarter (pictured) (Project ID: 21278983).

Strong growth in the retail sector this year will level off in 2025 then accelerate to rise by 9% in 2026.

“A steady increase in retail project starts is expected over the next two years, driven by anticipated growth in consumer spending,” says Mr Wilén. “This trend is likely to encourage retailers and developers to advance planned projects.”

One of the biggest retail schemes due to start next year is a £50 million redevelopment of the Merry Hill Shopping Centre in the West Midlands (Project ID: 21333371).

The underlying value of project starts in the industrial sector has fallen for the last two years due to lower consumer spending but will also grow steadily over the next two years, reaching 8% in 2026.

Mr Wilén comments: “The sector is expected to gradually recover from next year, mainly driven by manufacturing and warehousing projects. Although the online retail market has long passed its peak after the start of the pandemic, its share remains higher than pre-pandemic levels and is expected to continue growing, driving the demand for warehouse and logistics space.”

Approved industrial developments due to begin on site next year include a £55 million plan by Clowes for five units at Hucknall in Nottinghamshire (Project ID: 22368803), and an £80 million scheme for three more units at the Parkside Colliery Work Stream site on Merseyside (Project ID: 23185141).

Civil strength

Glenigan predicts a 26% leap in the value of underlying civil engineering project starts in 2024, which should be the biggest increase of any sector this year.

With a slew of major roads projects cancelled, this growth is expected to slow to 5% next year but then grow to 7% by 2026.

Mr Wilén explains: “Utilities work is expected to grow strongly, with increased investment in electricity generation and distribution to support the transition to Net Zero, and as the water industry steps up capital expenditure.

“Water companies have proposed doubling capital investment to £96 billion for AMP8, the next five-year control period, which includes projects such as new reservoirs and river quality improvements. While the regulator may scale back some plans, a substantial increase in water industry investment is expected.”

An extra £500 million for road repairs will boost infrastructure spending along with government support for major transport schemes such as the £1.3 billion HS2 rail tunnel to Euston (pictured) (Project ID: 17259563) and the £2 billion TransPennine route upgrade (Project ID: 24264556) and £2 billion East-West rail link (Project ID: 20363700) are expected to support wider growth.

Further out, Treasury plans to consolidate 86 separate local government pension schemes to create an estimated £80 billion investment fund could also have a major positive impact on the civil engineering sector.

Public benefits

In the near term, the best prospects for public sector building work lay in health.

While education work is expected to level off in 2026 due to weak university investment in construction undermining increased government spending on schools, particularly those affected by defective concrete, the health sector is set to strengthen considerably by 2026.

The underlying value of project starts in the health sector is predicted by Glenigan to rise by 11% this year. This growth is expected to slow next year before rising by 10% in the following year.

Mr Wilén explains: “Sector growth is expected to strengthen in 2026, with the government’s long-term spending plans to be outlined in the spring Spending Review. The forthcoming 10-year NHS plan, which aims for 2% productivity growth, is expected to focus on infrastructure improvements that enhance efficiency.

“The increased capital budget of £3.1 billion, including funds for repairs, hospital beds, and testing facilities, will support critical projects to expand capacity and address maintenance backlogs.”

Health schemes with approval and due to start over the next 12 months include the £64 million North Denbighshire Community Hospital scheme in north Wales (pictured) (Project ID: 16173691) and a £95 million refurbishment of Roseberry Park Hospital in Cleveland (Project ID: 23367786).

Also largely supported by government funding, the community & amenity sector is the smallest of the 10 sectors covered by Glenigan and the only one predicted to experience a fall in underlying starts next year.

A handful of schemes in the prison sector should begin over the next 12 months such as a £56 million upgrade of HMP Liverpool Prison (Project ID: 24068194) and by 2026 there should be a return to growth with a 5% rise in the value of underlying starts.

Better times ahead

The outcome of the next Spending Review will be crucial but the road to recovery is opening up and an overall 7% fall in starts for 2023 is forecast by Glenigan to have shifted to growth of 10% by 2026, bringing better times for the construction industry.