LONDON
Labour costs will likely rise due to tax increases and skilled labour shortages. Material costs could escalate as result of sustainability demands, tariffs and geopolitical uncertainties. RLB’s data shows rising input costs but flat tender prices.
In the short term, London’s construction market will see mixed activity, with some sectors progressing and others stalling due to regulatory changes and economic uncertainties. Long-term growth is expected, driven by improved consumer confidence and public sector investment. Significant housing growth is anticipated if government aspirations are realised.
Overall, the London market’s future hinges on effective adaptation to higher taxation, regulatory changes and economic conditions. Strong, adaptable teams and innovative thinking are essential to navigate these challenges.
MARKET CONDITIONS & PIPELINE
Positive market outlook tempered by economic and geopolitical headwinds
London’s construction market is poised for steady growth through 2025, driven by government investment, cutting-edge technologies, and a strong focus on sustainability. This positive outlook is reflected in the recent increase in planning and bid activity. However, the Ukraine conflict, the unsettling effects of US tariffs, and domestic tax changes could all serve to temper this initial wave of optimism.
The rise in National Insurance contributions in April 2025 will undoubtedly lead to increased labour costs, especially when coupled with labour shortages due to an ageing workforce, insufficient replenishment and immigration policy changes. This impact will be felt across regions, but it will be particularly pronounced in London.
The capital relies heavily on its office sector, which is reported to have seen a 12% decline through the winter of 2024. There are more residential projects in London being impacted by the Building Safety Act (BSA) due to the higher concentration of high-rise buildings. The new gateway checks are causing significant delays, adding up to 18 months to programmes. The BSA could lead to a return to more traditional procurement methods, as designs must be ‘construction ready’ before Gateway 2 approval is granted.
Generally, clients are taking a cautious yet proactive approach. While some areas may be slowing, others are beginning to pick up pace, especially as obstacles like BSA delays and planning bottlenecks are addressed.
RLB Market Activity Cycle
The RLB Market Activity Cycle is a representation of the development activity cycle for the construction industry.
RLB considers 10 sectors to be representative of the construction industry as a whole. Each sector is assessed as to which of three activity level zones – peak, mid or trough – best represents the current status of the sector within the cycle. This assessment is then refined by identifying whether the current status is in a growth phase or a decline phase.
The subjective current performance of sectors is identified by ascribing one of the coloured arrows (shown in the legend of the chart) to each sector. NB: In this analysis, sectors are not individually weighted.
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Market sector activity analysis: London
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of a region enables the calculation of a regional representation of percentage of sectors in each phase of the cycle at a point in time.
Market sector activity analysis: United Kingdom
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of multiple regions enables the calculation of a national representation of percentage of sectors in each phase of the cycle at a point in time.
TENDER PRICES
- The tender price forecast for London over the next 12 months is for a rise of approximately 3.25%.
- For 2026 and beyond, a steady increase is forecast, typically around 4% to 4.5% per annum.
Tender price change: London
▉ RLB London
▉ BCIS (National) TPI ▉ BCIS (GBCI)
▉ Competitors (High) ▉ Competitors (Low)
INPUT COSTS
- The drive for sustainability is pushing up insulation costs, as certain environmental standards stipulate very expensive products.
- Overall pricing levels in the London construction market have remained relatively stable this quarter compared to the last. While material prices have settled, labour costs continue to be a significant driver of overall input costs.
SECTOR FOCUS
Commercial
While industry surveys report a decline in office activity, life science projects continue to gain traction. Flexible workspaces in London are growing, driven by hybrid work models and collaborative office redesigns. Reservations about the sector’s future might be overstated, with several positive surveys indicating an increase in office attendance.
Data Centres
The data centre market in London and its commuter belt is experiencing robust growth, driven by increasing demand for digital infrastructure. Significant projects, such as the 140MW campus at the Court Lane Industrial Estate in Iver, are receiving approval, reinforcing London’s position as a leading market in Europe. Additionally, one of Europe’s largest data centres is set to be constructed in Hertfordshire, following approval by Hertsmere Borough Council.
Education
The education sector in London faces declining demand, with a predicted fall in pupil numbers of 3.6% at reception and 2.9% at Year 7. However, the government has committed £1.4bn nationally to rebuild over 500 schools and £2.1bn for maintenance of buildings, including those affected by RAAC.
Residential
London's private residential sector is experiencing mixed activity, with falling but still high interest rates and economic uncertainty slowing new housing starts, though demand remains strong for high-quality properties. The build-to-rent sector continues to grow, driven by changing renter preferences and the need for flexible living options. Meanwhile, affordable housing faces challenges, with strong demand outstripping supply despite increased investment and ambitious targets set by the Greater London Authority under the Affordable Homes Programme.
Retail
The retail sector in London’s construction industry is optimising assets, using data analytics to improve efficiency and converting vacant areas into mixed-use developments. The food and beverage sector is growing, but precariously. Retail is tied to upcoming tax changes, including increases to National Insurance and the National Minimum Wage. These changes are increasing retail business costs and could paradoxically reduce footfall due to higher unemployment, presenting challenges from multiple angles.
LONDON, UK
East Wick and Sweetwater
RLB is working with Places for People and Balfour Beatty Investments on East Wick and Sweetwater Phase 2, a project to deliver 210 mixed-use residential units and further develop the new neighbourhood of East Wick.
The project comprises five apartment blocks and 15 town houses, designed to a high sustainability standard and carefully integrated within the existing location, framed by the River Lea and Queen Elizabeth Olympic Park.
The shape of the residential buildings is maximised for energy efficiency and brings natural daylight into the units. These will have exemplary thermal performance and air tightness, and will benefit from low-carbon heating through connection to a district energy scheme.
The development incorporates extensive and carefully designed public realm, with communal gardens and an inclusive play area designed in consultation with London Legacy Youth Voice.
Data and analysis compiled by:
