GLENIGAN’S UK Construction Industry Forecast 2024-2026 released today anticipates a brighter outlook for construction in late 2024.

While near-term challenges such as weak economic growth, high interest rates, and disruption caused by the General Election stifle short-term growth, a strengthening economy is expected to boost consumer and business confidence from H2 2024.

The report signals recovery in the not-so-distant future, with a modest increase in project starts predicted in the latter half of 2024 lifting starts by 3% this year. As the economy picks up further in 2025, Glenigan forecasts 7% growth, and 6% in 2026.

Disruption Stifles Short-term Growth

Construction starts have remained sluggish during the first six months of 2024, as high interest rates and a weak economic outlook dented investor and consumer confidence.

The General Election has also affected the pipeline of public sector construction projects. The purdah period has disrupted the progress of public-funded projects, while decisions will also be delayed post-election as the new government reviews existing programmes such as the Lower Thames Crossing.

Starts on the Up

However, an easing in borrowing costs and improved economic conditions – with the UK economy forecast to grow around 0.8% in 2024 – together with greater political certainty, should help to lift investor confidence from the second half of 2024 and into next year.

Despite a tough start, renewed growth in project starts is forecast for H2 2024. The gradual easing of interest rates is also expected to feed through to lift housing market activity from the second half of this year.

Additionally, the Spending Review will set out the new government’s funding commitments and priorities and is expected to strengthen public sector construction activity during the second half of the forecast period.

Refurb Opportunities for Offices

Office starts have rebounded since 2023, after weakening economic growth and high interest rates dampened investor confidence and project starts.

The sector is predicted to benefit over the forecast period from a rise in refurbishment projects, as landlords adapt premises to further accommodate for the rise in hybrid working.

Furthermore, demand for premium ‘green’ office space, is set to support a rise in new build starts during the forecast period.

These opportunities for the sector are predicted to drive growth over the next two years: 12% in 2025, and 4% in 2026.

Allan Wilen, Glenigan Economic Director

Glenigan’s Economic Director, Allan Wilen, said: “The UK construction sector is still facing significant headwinds as the economy struggles to pick back up. However, there are signs of growth in several key areas, particularly in the private verticals, signalling a gradual recovery from mid-2024.

“The office sector faced economic headwinds in 2023 as growth stalled and interest rates rose sharply, dampening investor confidence and commercial property values, and affecting project starts.

“Additionally, a slowdown in the job market, with rising unemployment and falling vacancy rates, further pressured demand for new office space.

“While the overall office space requirement won’t reach pre-pandemic levels, the rise of hybrid working is driving demand for more modern and collaborative workspaces through refurbishments and fit-out projects. Companies are also increasingly subletting their existing space, creating further refurbishment opportunities.

“Elsewhere, upcoming energy efficiency regulations will create substantial refurbishment and retrofit opportunities.”

Download a copy of Glenigan’s UK Construction Industry Forecast 2024-2026 here.

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