UK construction sector turns a corner, but sustained confidence will be key to recovery

• The UK’s construction sector contraction has ended, with marginal growth achieved in the second half of 2024

• Our Spring Market View report outlines how residential city development pivots to low-rise schemes to counter building safety delays

• Significant investment in energy transition, water infrastructure, and flood protection – key growth areas for Arcadis - drives UK construction activity

(10 March 2025) – The long-awaited turning point for the UK construction sector has arrived, with marginal growth achieved in the second half of 2024, according to a sector update report from leading global consultancy Arcadis.

However, despite this positive shift, caution remains as new orders have fallen sharply, dropping nearly 20% since July.

While government reforms aim to deliver long-term growth, the short-term outlook remains challenging. The timing of public investment in building projects is dependent on the Comprehensive Spending Review and local government devolution, leaving developers with limited options to overcome viability constraints.

The Spring Arcadis Market View sets out how, in the residential sector, developers are pivoting towards low-rise schemes in urban areas to navigate Building Safety delays, while infrastructure investment is set to surge following Ofwat’s confirmation of a major expansion in water programmes. 

Resilience, places, and mobility

Once again, our Market View examines current market conditions affecting major sectors in UK construction markets covering resilience, mobility, and places. The resilience sector in particular is emerging as a key driver of UK construction activity, with significant investment in energy transition, water infrastructure, and flood protection. The £20bn ASTI transmission programme and £44bn allocated to water network enhancements present a substantial pipeline of work.

The mobility sector, meanwhile, is at a turning point, with major planning decisions on Lower Thames Crossing and airport expansions expected to drive private investment. Delays to road programmes and HS2 reprofiling may ease resource constraints, while smaller-scale road schemes create new opportunities for mid-sized contractors amid shifting infrastructure funding priorities.

The places sector, which spans public and private investment in buildings ranging from housing to schools, hospitals, and commercial office development, is seeing renewed focus on public sector opportunities. A recent 8% rise in public building orders suggests a potential shift in spending priorities, driven by increased investment in hospitals and social infrastructure. The reprofiling of the New Hospitals Programme signals a long-term commitment, while the replacement schools programme is providing stability for MMC-focused contractors.

However, local government investment may face disruption as funding is devolved to Combined Authorities, replacing previous competitive programmes such as the levelling up fund.

Simon Rawlinson, Arcadis Head of Strategic Research and Insight, said:

“The UK construction sector has reached a turning point, with marginal growth in late 2024 marking the end of contraction. However, the outlook remains uncertain, with a weakening future pipeline posing a serious concern."

“New orders have dropped sharply, and while infrastructure investment is set to rise, commercial and residential recovery remains sluggish due to low confidence and high finance costs. The shift towards low-rise residential schemes highlights ongoing regulatory challenges, while resource constraints in the resilience sector could drive inflationary pressures."

“Without renewed investor confidence and strategic government action, a sustained recovery is far from guaranteed."

Stuart Humber, Arcadis UK&I Service Lead, Resilience, said:

“The resilience sector is set to be one of the most active in UK construction, driven by major investments in energy transition, water networks, and flood protection. With a £20bn portfolio of ASTI transmission projects and £44bn for water network enhancements, few sectors can match its scale and diversity."

“However, with AMP8 now moving forward, water companies are relying on an already stretched supply chain to rapidly scale up. Labour market constraints and procurement challenges for specialist equipment could drive inflationary pressures, while planning reforms may add further competition for resources as the renewables sector accelerates investment."