Arcadis Reports Cautious Optimism for UK Building in 2025
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After a turbulent few years marked by supply chain disruption, planning delays and stubborn inflation, the UK construction sector may finally be edging towards calmer waters. Arcadis’ Summer 2025 UK Construction Market View suggests that while no swift recovery is guaranteed, workload levels are stabilising and new orders are emerging, particularly because of substantial public capital investment plans totalling £725 billion over the next decade.
The market remains split, however. A fragile private sector faces ongoing challenges from low confidence and high financing costs, but a robust public sector pipeline, coupled with early signs of improved sentiment, is laying the foundations for a steadier medium-term outlook.
Public sector spending drives resilience while private markets lag
Central to Arcadis’ cautiously optimistic outlook is the UK government’s Comprehensive Spending Review (CSR) and Infrastructure Strategy. The CSR secures multi-year funding for critical sectors such as transport, defence, health and energy security. Notably, city regions have secured devolved transport settlements worth £15.6 billion through to 2031, doubling investment in local networks.
In the water sector, the latest Asset Management Period (AMP8) commits to £44 billion of enhancement investment, representing a 200% increase over AMP7 levels, yet delivery windows are shortening, putting pressure on supply chain capacity. Elsewhere, significant capital is allocated for road maintenance, megaprojects like HS2, and the development of Sizewell C and the Small Modular Reactor programme.
Taken together, this public capital spending aims to balance the subdued private market. Many developers are only now exploring new opportunities, cautiously testing schemes at rebased land values as construction costs plateau and planning reforms slowly progress.
Housing market: a critical weak link or an untapped rebound?
Residential construction remains the sector’s weakest link. While new build registrations outside London are showing healthy growth, with the National House Building Council reporting a 36% year-on-year rise for Q1 2025, the capital continues to struggle with viability issues, delayed approvals and weak demand for high-density developments.
The Gateway 2 safety process for High-Risk Buildings (HRBs) has extended pre-contract timelines, pushing lead times to around 18 months in some cases. For developers, this means fee income from pre-construction services is now essential while build phases remain delayed.
Despite these hurdles, there are bright spots. The build-to-rent segment alone is forecast to attract a record £6 billion of investment in 2025, showing investor appetite for resilient, income-generating assets that fit evolving urban housing needs.
Inflation steady but pressures persist
Tender price forecasts remain largely steady, with Arcadis expecting moderate cost increases as contractors recover National Insurance Contributions and face ongoing workforce constraints. Regional Building TPI is projected at 2 to 4 percent for 2025, with steady increases likely in line with supply chain demand and tightening capacity through to 2029.
The skilled labour market is stable for now, but long-term challenges remain. With recent policy changes restricting skilled migration routes to degree-level roles only, over 75 percent of the sector’s future workforce will need to come from the domestic pool. Although £600 million in new training investment is planned, the industry’s track record on apprenticeship retention continues to be a concern.
Material price inflation has softened for most core inputs, though isolated spikes such as a 12 percent increase in European steel sections since January need close watching. Commodity markets stay volatile, and supply chain managers must handle local sourcing while navigating global trade risks and tariffs.
The megaprojects and private capital outlook
Large schemes continue to shape regional capacity and market confidence. Projects such as HS2, Hinkley Point and the Agratas gigafactory reinforce the pipeline’s scale but highlight the competition for skilled labour and specialist contractors.
Meanwhile, the commercial property market has shown surprising resilience. UK commercial real estate investment volumes rose by 23 percent to £50 billion in 2024, driven by recovering demand for office and industrial space. Real Estate Investment Trusts (REITs) posted strong returns, and major landlords reported healthy rental growth. Together with £32 billion in outstanding development loans, these figures suggest private capital is ready to return where the conditions make sense.
The Arcadis report paints a picture of a sector on a fragile turning point. Public investment is in place, the labour market is broadly steady, and optimism among architects and contractors is recovering after a difficult period.
Yet risks remain. Inflation, planning delays and the need for skilled talent could still slow progress. Delivering steady growth into the late 2020s will depend on how quickly developers, clients and policymakers can turn policy promises into practical projects and whether the private sector has the confidence to re-enter at scale.
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