As the construction sector enters 2026, the prevailing mood is not one of acceleration or retrenchment but reset and rebalance. After several years shaped by inflationary pressure, labour and materials volatility, shifting occupier behaviour and political uncertainty, the market is settling into a more deliberate and selective phase.

Demand remains across most core sectors. Capital is still available. On-site activity continues across many programmes. But confidence has softened in some sectors, decision-making has slowed and clients are applying greater scrutiny - not simply to price, but to programme certainty, compliance risk, sustainability obligations and delivery capability - before committing to the next stage of development.

This is not a retreat from ambition, including on sustainability, but a shift in emphasis. Priorities that gained momentum in recent years, such as ESG, carbon reduction and building performance, are increasingly being tested against deliverability, affordability and long-term value, rather than pursued in isolation. The result is a market defined less by speed and scale, and more by certainty of delivery and commercial discipline.

Momentum around net zero continues but has moderated as the costs and difficulty of achieving targets has become more evident. While carbon and energy reporting is becoming more widespread and more rigorous, activity is increasingly focused on assurance and compliance rather than experimentation or innovation. The result is a market that is neither stalled nor booming, but cautious, disciplined and increasingly focused on confidence in delivery outcomes.

For the industry, 2026 is not just ߣߣ��Ƶapp regaining momentum after a flat 2025 - it is ߣߣ��Ƶapp enabling projects to move forward with confidence. The pace of recovery will also be influenced by the extent to which funding conditions and planning certainty improve over the course of the year.

Offices: Demand, Constraint and Deliverability

The office sector continues to move beyond headline debates around hybrid working. At the top end of the market, competition for high-quality, well-located workspace remains intense, particularly in core locations such as the City of London.

Prime and Grade A space is increasingly constrained, and recent research from Knight Frank highlights a tightening supply/demand imbalance, with an undersupply of millions of square feet forecast by 2028 as demand continues to outpace new delivery. ^[1]

For committed developers where schemes are viable and occupier demand is clear, programmes are progressing at pace. But the principal constraint in new development is certainty of occupation: speculative development remains limited, with most projects dependent on pre-lets before construction can proceed. As a result, funding security has become more difficult to achieve, with funders adopting a lower appetite for risk at the same time as contractors are pricing risk more cautiously. This tension is placing additional pressure on appraisals, particularly in an environment of elevated construction costs.

Rising build costs since 2020, most recently felt in MEP, have further strained viability, while rents are only now beginning to catch up with developer expectations. At the occupier end of the market, higher rents and fit-out costs are also influencing behaviour, with some tenants choosing to re-gear rather than relocate. Others are starting the site search and selection process earlier, or pursuing in-situ refurbishment, to secure quality space in an increasingly competitive market. 

Recent analysis from highlights that occupier demand for high-quality space is outstripping new construction, as new starts continue to fall. In response, many occupiers are investing more heavily in fit-out, either upgrading existing space or committing earlier to fit-out design on pre-let schemes, to secure quality accommodation in a constrained market. This has reinforced fit-out as a critical component of the office lifecycle, rather than as a late-stage consideration.

Against this backdrop, secondary stock is under growing pressure. Assets that struggle to meet environmental, safety or occupier expectations often have little choice but to move forward with refurbishment to remain lettable, or to consider change of use where quality thresholds cannot be met. As a result, much of the near-term activity in the office sector is focused on retrofit, refurbishment and high-quality fit-out, alongside carefully targeted new development where demand, funding and viability are clearly aligned.

This shift is reinforced by sustainability considerations. Industry analysis indicates that net zero carbon targets remain challenging to achieve, particularly for new build, while retrofit projects are significantly more likely to deliver against operational and embodied carbon objectives. This underlines why investment in existing assets is increasingly seen as both a commercial and environmental imperative, rather than a secondary option.

Projects completing in 2026 reflect these dynamics. Large, complex refurbishments in dense urban environments demonstrate how value is being unlocked through improving the performance and longevity of existing buildings, rather than expanding supply indiscriminately. These schemes bring particular challenges - including heritage constraints, operational interfaces, sustainability targets, planning complexity and cost sensitivity -all of which demand early coordination and disciplined delivery strategies.

At 1 Golden Lane, G&T is working with the client to transform an existing building into a modern, sustainable office space, retaining 96% of the existing structure, including a Grade II Listed element, while adding four new storeys. The scheme has adopted a pioneering approach to re-using and re-fabricating 25 tonnes of steelwork from the original building for use in the new development. The challenge is to deliver a net zero carbon office that meets contemporary workplace standards without compromising the building’s historic integrity or commercial viability.

As interest rates ease and rents continue to adjust, there is growing expectation that scale will re-enter the market, enabling more developers to return where underwrites begin to stack up. In the near term, however, success in the office sector will be defined by the ability to balance scale, deliverability, adaptability and long-term value in a market shaped as much by cost, funding and risk as by demand alone.

Residential: Demand Without Momentum

Residential development enters 2026 with demand that is both well understood and widely acknowledged. The challenge is not identifying need, which remains structurally high across tenures, but translating that demand into deliverable pipelines in a market constrained by affordability, scheme viability and deliverability risk.

The CPA’s latest forecasts underline this tension clearly. Private housing output is expected to rise by only around 1.5% in 2026, from a low base, with little evidence to suggest a strong acceleration this year. Sales rates weakened materially through 2025, and while some release of pent-up demand is expected in early 2026 following the Autumn Budget, the CPA sees no catalyst for a sustained rebound. Affordability remains the binding constraint, particularly in higher-priced markets, and the absence of meaningful demand-side stimulus continues to weigh on buyer confidence.

Across private, affordable and mixed-tenure housing, progress is increasingly influenced by how schemes are structured rather than underlying demand. Developers, registered providers and local authorities are reassessing tenure mix, phasing and delivery models to manage risk exposure and maintain flexibility, particularly where funding certainty, grant conditions or sales assumptions remain finely balanced.

In this context, residential delivery is therefore becoming more selective and sequential. Larger schemes are more likely to progress in phases, with earlier emphasis on infrastructure, enabling works or lower-risk elements, rather than advancing entire masterplans at once.

This approach reflects a deliberate effort to manage exposure to sales rate volatility, funding conditions and regulatory timing risk. For many clients, confidence now depends on the ability to adapt delivery strategy over time, rather than committing to fixed assumptions too early. These dynamics are most evident in high-rise residential, where delays associated with Building Safety Regulator gateways have been a material drag on starts through 2024–25 and continue to suppress output in 2026, despite approval timelines beginning to normalise following government intervention.

The result is a residential market that remains active but measured. Momentum is expected to build where funding structures are clear, partnerships are well aligned and delivery strategies can respond to changing conditions. As with other sectors, success in 2026 will be defined less by headline volumes and more by the ability to sustain delivery through uncertainty.

Retail and Leisure: Repositioning the Asset Base

Developer appetite is gradually returning to the retail and leisure sector, particularly in out-of-town retail parks and destinations anchored by competitive socialising, food and experience-led leisure. This reflects a broader shift away from expansion towards repositioning and value creation within existing assets.

New-build development remains selective, but there is steady activity in refurbishing existing buildings, integrating leisure and hospitality into mixed-use environments, and supporting place-based regeneration. These projects are typically delivered in live environments and rely on phased investment, making cost control, phasing and programme certainty critical to success.

Increasingly, clients are prioritising flexibility - creating assets that can adapt to changing consumer behaviour, operating costs and economic conditions over time. This has reinforced the importance of disciplined early planning, particularly where projects must balance commercial viability with placemaking ambition.

A successful repositioning project delivered in 2025, was the Louis building in Manchester, formerly a flagship retail space. The scheme required a complete transformation to remain commercially relevant, with the client seeking to reposition the building as a premium hospitality venue while retaining it architectural character.

The project faced typical retrofit challenges, including site constraints, the need to preserve heritage elements, and a demanding programme. The outcome, a distinctive hospitality destination contributing a new offer to Manchester’s city centre, demonstrates how adaptive reuse, managed risk and clear delivery strategy can unlock value in a challenging market, and provides a benchmark for future retrofit-led regeneration schemes.

Infrastructure: From Pipeline to Proof

Infrastructure will continue to underpin construction activity in 2026, supported by a substantive, long-term pipeline across transport, utilities, energy and wider national infrastructure. Unlike more discretionary sectors, demand is driven by structural need and long investment horizons rather than short-term sentiment.

Through much of 2025, however, progress was uneven. Long-term frameworks across sectors such as water, rail and wider transport were procured, but mobilisation lagged, as supply chain transitions and the challenge of ramping up capital programmes slowed the move from approval into delivery. This was particularly evident through Q3 and Q4 of 2025. As these programmes bed in, volumes are expected to increase through Q1 and Q2 2026 onwards, as frameworks convert into active delivery programmes rather than remaining pipeline commitments.

Private investment was also affected by timing and policy uncertainty. A late UK Government Budget towards the end of 2025 led several private clients to pause or defer significant capital commitments. That hesitation is widely expected to unwind as funding positions, policy signals and market conditions become clearer, allowing schemes already in development to move forward.

Clients, funders and public bodies are therefore applying greater scrutiny to business cases, procurement strategies and governance arrangements. There is less tolerance for optimism-led assumptions and a stronger emphasis on robust cost, programme and risk clarity before projects progress, particularly where schemes involve multi-year commitments and complex delivery interfaces.

At the same time, infrastructure schemes are expected to deliver more than ever: supporting decarbonisation, resilience, social value and regional regeneration alongside their core function. This increases complexity and reinforces the need for early, joined-up thinking across technical, commercial and delivery considerations.

Within this broader picture, certain sub-sectors are entering a particularly active phase. Aviation is expected to see sustained growth over the next five years, as UK airports progress defined transformation programmes, many of which now have permission to proceed. Alongside this, energy generation, storage and transmission continue to expand rapidly, driven by national priorities and long-term private investment supporting the transition to a lower-carbon energy system.

This shift is evident in major energy and industrial schemes now moving from concept into execution. At Tees Valley Lithium, G&T is supporting the development of a lithium hydroxide refinery drawing on engineering and technology expertise from across the UK, the US and Australia. Success depends on precise execution and strong commercial discipline to meet ambitious delivery and production targets.

Managing global coordination, integrating design and procurement timelines and ensuring each stage is optimised for value, without over-engineering or unnecessary contingency, is critical. These controls provide timely, data-led insight, flag risks early and support readiness for investment approval, establishing a strong foundation for delivery at scale.

Cost, Risk and Market Reality

Across all sectors, cost remains the defining consideration. While material prices have stabilised compared with recent volatility, labour availability, compliance requirements and risk transfer continue to exert pressure on project budgets. These factors are often less visible than headline inflation, but they are increasingly influential in shaping procurement behaviour, programme strategy and investment decisions.

As a result, clients are seeking greater clarity earlier, not just on headline capital cost, but on risk exposure, assumptions and resilience under different market scenarios. Cost advice is being pulled forward to support feasibility, option appraisal and funding decisions before designs are fully formed.

This reflects a broader rebalancing of priorities. In 2026, cost certainty is not ߣߣ��Ƶapp removing risk altogether but ߣߣ��Ƶapp understanding it well enough to proceed with confidence, or to pause with intent rather than drift.

The Design Bottleneck

One of the clearest signals of this rebalancing is where friction is emerging in some sectors, though not all. In cautious economic conditions, it is rarely planning policy or delivery capability that slows projects down. Instead, momentum can falter at the design stage - the point where ambition becomes tangible and uncertainty is hardest to ignore.

Recent market signals show a clear disconnect. On-site activity remains resilient, supported by legacy schemes and committed investment, even as confidence around future starts has softened. This reflects a pipeline that still exists, but one that is increasingly paused upstream, at the point where strategic intent must be translated into scope, cost and risk.

That hesitation is reflected in recent market data. UK construction new orders rose by almost 10% quarter-on-quarter in Q3 2025 (driven by commercial and industrial sectors), even as broader confidence softened - highlighting a market where underlying demand persists, but progression into detailed design and new starts is increasingly cautious in some sectors.

Design is where that pause becomes visible. It is the moment when high-level intent is translated into drawings, specifications and cost envelopes - forcing decisions on scope, quality, sustainability, flexibility and affordability.

In a volatile environment, those trade-offs feel riskier. Sustainability ambitions, in particular, are being more carefully assessed, with some decisions paused as clients weigh cost, deliverability and regulatory certainty. Committing to a design direction can feel like closing down options too early, particularly where funding assumptions, occupier demand or policy requirements remain fluid.

This has led to extended concept stages, repeated option testing and slower progression through design gateways, especially in large-scale programmes. This hesitation should not be mistaken for failure. In many cases, it is a rational response to uncertainty with clients choosing to stress-test options, revisit assumptions and preserve flexibility rather than lock in decisions that may prove difficult to unwind later.

For the construction industry, this reinforces the importance of early, integrated advice that helps clients understand not just what something costs, but what committing, or not committing, really means in terms of risk, programme and long-term performance.

Sustainability: A More Pragmatic Phase

Sustainability remains an important consideration for most clients, but sentiment has softened compared with previous years. This reflects a move into a more pragmatic and integrated phase, shaped by economic uncertainty, evolving regulation and growing scrutiny over how environmental ambition translates into tangible value.

Uncertainty around future regulatory requirements, combined with cost pressures and delivery risk, is causing some clients to pause or reassess sustainability decisions at design stage. In many cases, the challenge is not commitment to net zero in principle, but confidence in how to deliver it affordably, consistently and at scale.

Rather than being pursued as a standalone objective, environmental performance is increasingly assessed alongside affordability, programme certainty and operational efficiency. Clients are prioritising sustainability measures that deliver clear, long-term value — such as reduced operational costs, improved asset resilience and future regulatory compliance — rather than pursuing credentials in isolation.

The challenge for the industry is therefore not to dilute sustainability ambitions, but to embed them intelligently: helping clients navigate trade-offs, reduce uncertainty and make informed decisions that align environmental performance with commercial reality.

Setting the Tone for 2026

Taken together, these trends point to a construction market that is more measured, more selective and more focused on long-term outcomes.

For clients, 2026 is ߣߣ��Ƶapp informed commitment: deciding when to proceed, how to phase investment and how to balance ambition with realism. For the industry, it is ߣߣ��Ƶapp providing clarity - helping projects move beyond hesitation at design stage and into delivery with confidence.

This is not a year for lowering expectations. It is a year for rebalancing priorities - and for setting a foundation that enables resilient, adaptable places and infrastructure to be delivered in an evolving market.

How G&T Helps

In a market shaped by uncertainty, progress depends less on speed and more on clarity and judgement. As projects hesitate at design stage and decisions feel harder to commit to, the role of advisers is increasingly ߣߣ��Ƶapp helping clients interpret complexity - not just analyse it.

G&T supports clients early in the lifecycle of projects, combining data-led insight with deep market experience. Market intelligence, benchmarking and scenario testing provide an essential evidence base, but they are only part of the picture. Equally important is understanding how schemes have performed in past cycles, how markets respond under pressure and where optimism has historically outpaced reality.

This blend of quantitative insight and human judgement is particularly valuable where decisions are finely balanced - whether that is testing the viability of an office retrofit, stress-testing infrastructure programmes, or assessing the phasing and risk profile of mixed-use and regeneration schemes. It allows clients to explore options properly, understand trade-offs clearly, and move forward with intent rather than drift.

Across the market, the challenge in 2026 is not a lack of ambition. More often, it is uncertainty ߣߣ��Ƶapp how and when to proceed. By combining robust data with seasoned judgement, informed by experience across multiple market cycles, G&T helps clients make informed decisions at the point where they matter most.

Connect with our experts: Rob Webber (Cost Consultancy), Edward Shield (Project Leadership) and Dan Wynne (Infrastructure Management). 

References

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