Defence and infrastructure to help grow sector over next five years, report says

The construction market is expected to return to moderate growth over the next five years due to defence and healthcare jobs, according to a new report.

However, the analysis by property and construction consultancy McBains, warned that “significant cost pressures and uneven sector performance” are continuing to threaten recovery.

It predicts growth will also be supported by infrastructure, data centres and public sector capital expenditure.

McBains’ latest industry report said that while competitive tendering is helping to constrain price growth, the sector continues to face uncertainty from geopolitical developments, energy costs, material price volatility and labour shortages.

It anticipates construction output will grow by 1.8 per cent in 2027, strengthening to 2.8 per cent in 2028, before moderating to 2.3 per cent in 2029 and 2.1 per cent in 2030.

But it warned residential and commercial development are likely to experience a more bumpy recovery, with affordability pressures, planning constraints, financing costs and increasing regulatory requirements continuing to affect project viability.

McBains director Colin McCaffrey said he expects a “gradual recovery rather than a rapid rebound”.

“The divide between sectors is pronounced, with an encouraging outlook for infrastructure, defence and healthcare, which are predicted to benefit from significant investment. But due to affordability, material costs and regulation, residential remains constrained,” he said.

He warned that steel prices and volatility in energy costs are making it harder for contractors to price with confidence.

“While there are challenges to contend with, there are also opportunities,” he added.

“Over the next five years, we expect infrastructure, defence, healthcare and data centres to offer important opportunities for the sector, alongside growing demand for retrofit, as building owners look to improve energy performance, with pressure to meet sustainability objectives and protect the long-term value of their assets.”

He said projects that are “well-funded, properly planned and supported by a robust delivery strategy” will be best placed to navigate the uncertainty facing the industry.

McBains compiled the report using data from the Construction Products Association, the Construction Industry Training Board, the Building Cost Information Service and others.

Last week, Glenigan’s economics director Allan Wilen warned that the construction market remained “fragile” and that activity was “weakening”.

Glenigan’s latest report showed project starts slid 26 per cent, main contract awards dropped 19 per cent and planning approvals fell 16 per cent in the three months to the end of September, compared with the preceding quarter.

“Too much of the market still rests on a small number of large projects,” said Wilen. “If one of them slips, the whole sector feels it, and a market that relies on a handful of big schemes is fragile.”

The latest Purchasing Managers’ Index (PMI) from S&P Global also showed that UK construction output continued to shrink in September – but the rate of decline was the slowest since January.

PMI output in September picked up to 46.1 from 44.3 in August, the softest fall in output volumes for eight months. Any score below 50 indicates a contraction in activity.

S&P Global’s UK Construction PMI has been below 50 for every month since January 2025, the longest continuous stretch of decline since the 2008 global financial crisis.