How Construction and Real Estate Will Navigate Change in 2026

Against this backdrop, performance will vary significantly across the industry. Our insights on some of its core segments are that:

1. Infrastructure stands out The most reliable driver of activity. Multi-year programmes such as Thames Water’s £20.5bn plan and OGEM’s £28bn commitment is welcome news, which alongside defence, health and energy-security projects will help drive growth. Improvements to Gateway 2 approvals are also a positive sign, which will help erode backlogs, but skilled labour shortages, especially in areas such as civil engineering, remains a structural constraint.
2. Social and affordable housing Delivery has struggled to keep pace with need, with volatility in funding cycles and contractor attrition hampering output, but 2026 should offer a more stable footing, with a greater dependence on public funding. Government housing targets and retrofit ambitions continue to grow, and more consistent procurement across maintenance and new build is anticipated. However, the sector’s ability to translate policy into output will depend on planning capacity and access to skilled labour.
3. The private residential market Constrained by weak buyer sentiment and borrowing costs that remain elevated compared to pre-2022 norms. Together, these factors continue to limit the pace of growth, keeping price inflation relatively contained. Policy uncertainty, including potential changes to SDLT and council tax reforms, as well as the recently announced high-value council tax surcharge (formerly speculated as a “mansion tax”), has caused developers to delay key decisions. At the same time, the Renters Reform Bill and additional taxes on private landlords continue to depress traditional buy-to-let activity. Build-to-rent and the institutional private rented sector may absorb some displaced investment, but overall activity is likely to remain subdued.
4. In commercial property Demand for Grade A, ESG-aligned office space and retrofit projects will continue to hold up well, while secondary offices face rising voids and value decline. Industrial and logistics remain supported by e-commerce, life sciences and reshoring trends, although growth has moderated. Retail is likely to continue its long-term contraction, with activity centred on repurposing and regeneration rather than expansion.
5. Refurbishment, fit-out and facilities management (FM) This will remain comparatively resilient, supported by corporate ESG commitments, energy-efficiency targets and a decade-long shift toward lower-capex estate optimisation. Retrofit is likely to remain one of the most consistent sources of demand through 2026.