PwC’s latest Construction and Housebuilding Outlook (March 2026) confirms what many in the industry already sense: the UK construction sector is growing again, but unevenly. Infrastructure and industrial work are pulling things forward. Housing and commercial remain sluggish. Growth is forecast to reach 3.5% by 2028 – but only if energy, water, and defence programmes deliver on schedule. Here’s what the numbers actually mean for your business.
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Two years of contraction. A Q4 2025 that saw output fall 2.1%. And a government housing target that almost nobody believes is achievable at current pace. That’s the backdrop to PwC’s sixth Construction and Housebuilding Outlook, published this month – and it paints a picture that’s equal parts reassuring and sobering.
The headline? UK construction returned to modest growth of around 1.1% in 2025, broadly in line with forecasts. PwC expects that to nudge up to 1.7% in 2026, then 2.9% and 3.5% in 2027 and 2028 respectively. But those numbers hide massive variation beneath the surface. Industrial output surged 19.3% last year. Commercial contracted by nearly 9%. Housing flatlined. If you’re running a business in this market, the national average tells you almost nothing about what’s coming your way.
We dug through the full report so you don’t have to. Here’s what matters – sector by sector, and what it means for the decisions you’re making right now.
The Big Picture: Growth Is Back, But It’s Lopsided
What the overall numbers tell us (and what they hide)
PwC’s central forecast sees the UK construction market growing steadily through to 2028, with infrastructure and industrial sectors doing the heavy lifting. The return to growth in 2025 was driven mostly by public spending in health and education, plus energy and utilities infrastructure. Private housing and commercial construction? They stabilised, but that’s about all you can say.
Worth noting: PwC has actually revised its 2026 forecast down by 1.4 percentage points compared to its previous edition. The 2027 outlook dropped by 0.7 points too. The reason? A slower-than-expected recovery in residential and commercial new build, plus transport infrastructure schemes that keep getting pushed back. Growth over the forecast period is now expected to be flatter and more backloaded into 2027-2028.
ONS data from February 2026 confirmed the weak finish to 2025 – total construction output fell 2.1% in Q4, with private new housing down 3.6%. New orders also dropped 3.8% quarter-on-quarter. So while the direction of travel is positive, don’t mistake the forecast for a straight line upward.
Residential: The 1.5 Million Home Question
Why housing is recovering in theory but stalling in practice
Residential output flatlined in 2025 after two consecutive years of contraction. PwC forecasts growth of 2% in 2026, accelerating to 4.5% in 2027 and 6.7% in 2028. That sounds encouraging until you run the maths against the government’s target of 1.5 million homes this Parliament.
The constraints are stacking up. Housing transactions have stabilised around 100,000 per month – well below the pre-pandemic norm of roughly 120,000. Labour costs rose following the 2025 Autumn Budget. Materials prices remain elevated compared to pre-2022 levels. And planning delays, particularly for high-rise schemes under the Building Safety Regulator’s Gateway 2 process, continue to choke land pipelines.
On the public side, housing associations are under real financial pressure. Sector debt now exceeds £130 billion, with interest costs sitting materially above pre-tightening levels. Capital is being funnelled into remediation, decarbonisation, and safety compliance rather than new development. The new £39 billion Social and Affordable Homes Programme (2026-2036) should improve visibility over the medium term, and the CPI+1% rent settlement gives providers more income certainty. But 2026 is likely the early phase of recovery, not the recovery itself.
Infrastructure: Energy and Water Are Carrying the Sector
Where the real money is going through 2028
Infrastructure growth was modest at around 1.3% in 2025, weighed down by transport delays – cancelled road schemes and rail activity pushed into later years of Control Period 7. But from 2026 onwards, PwC forecasts growth of 3.1%, rising to 4.2% in 2027 and 5.7% in 2028.
The drivers are clear. Nuclear projects at Hinkley Point C and early works at Sizewell C anchor long-term activity. Transmission investment is scaling up under Ofgem’s RIIO-3 framework, with £28 billion of initial approved expenditure. And water infrastructure is seeing record investment under AMP8, with Ofwat’s £104 billion five-year programme targeting storm overflow upgrades, nutrient removal, and supply resilience.
- Nuclear and energy generation. Hinkley Point C construction continues, Sizewell C early works underway, plus £28bn in transmission investment under RIIO-3.
- Water and sewerage. Ofwat’s £104bn AMP8 programme includes £44bn for new infrastructure and enhancements through 2030.
- Transport (the laggard). HS2 uncertainty, RIS3 prioritising maintenance over new schemes, and Lower Thames Crossing unlikely to contribute within the forecast window.
Transport, by contrast, remains the weak link. Rail output is expected to soften in 2026 amid HS2 uncertainty. Roads activity is subdued too, with RIS3 focused on maintenance and renewals rather than big new schemes. If your order book leans heavily on transport infrastructure, the next 18 months could be thin.
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Join 2500+ ReadersIndustrial: The Standout Performer
Gigafactories, data centres, and defence spending are rewriting the playbook
Industrial output surged 19.3% in 2025 to reach an estimated £11 billion – massively above expectations. Factory construction is the main engine, driven by Tata’s £4 billion Somerset gigafactory, Nissan and Envision AESC’s Sunderland battery plants, and a growing pipeline of renewable energy supply chain projects including LSEAC’s proposed £923 million cable plant at the Port of Tyne.
Defence is becoming a bigger part of the story. The government has committed £1.5 billion in additional defence spending, with projects like Rheinmetall’s gun barrel facility in Telford and Rolls-Royce’s expansion at Raynesway. Data centres are attracting enormous capital commitments from Microsoft, Google, Amazon, and Blackstone (whose £10 billion Northumberland hyperscale facility was approved in 2024). Grid capacity constraints may limit near-term delivery, but acceleration is expected from 2027 onwards.
PwC expects growth to moderate to low single digits through the forecast period – still positive, but the 2025 spike won’t repeat. For contractors with capability in advanced manufacturing, energy, or defence, this is the busiest pipeline in a generation.
Commercial: Still Searching for a Floor
Offices and retail drag, but life sciences offer a bright spot
Commercial new build contracted by approximately 9% in 2025 – significantly worse than PwC’s previous forecast. The culprits are familiar: weak occupier demand for offices, elevated borrowing costs, and a retail sector that continues its structural decline. Recovery is expected to be gradual, with growth of 1.7% in 2026 rising to 3.5% by 2028.
Offices are the primary drag. Speculative development is limited outside London, and vacancy rates beyond prime Central London remain elevated. Grade A vacancy in the Big Six regional cities sits around 3.6%, compared with overall regional vacancy of roughly 8% – a clear signal that demand is concentrating in ESG-compliant, high-quality space while lower-grade stock struggles. Longer-term signals from Central London are more positive, with the City of London Corporation recording its highest number of planning applications in a decade during 2025.
Life sciences remain the standout within commercial. The £1 billion London Cancer Hub expansion, the £3 billion Cambridge Biomedical Campus investment, and ongoing construction at One North Quay in Canary Wharf are all contributing real activity. If you’re positioned in the technical buildings space, there’s work. For generalist commercial contractors? It’s going to be a patient few years.
Sector-by-Sector Forecast at a Glance
All figures below are from PwC’s Construction and Housebuilding Outlook, March 2026.
| Sector | 2025 (Actual) | 2026F | 2027F | 2028F | Key Driver |
|---|---|---|---|---|---|
| Residential | 0.0% | 2.0% | 4.5% | 6.7% | Rate cuts, affordable homes funding |
| Commercial | -8.9% | 1.7% | 2.8% | 3.5% | Life sciences, flight to quality |
| Industrial | +19.3% | 1.5% | 2.4% | 4.3% | Gigafactories, defence, data centres |
| Infrastructure | +1.0% | 3.1% | 4.2% | 5.7% | Energy, water (AMP8), nuclear |
| Public non-residential | +18.3% | 3.1% | 3.5% | 1.0% | NHS, school rebuilding, prisons |
What This Means for You
Reading the forecast through a commercial lens
The Planning and Infrastructure Act 2025, which received Royal Assent in December, should help at the margins – streamlining approvals, reducing planning friction, and letting local authorities set their own fees. But legislative reform takes years to filter through to site activity. In the near term, the market remains one where sector selection and order book diversity are the difference between margin protection and margin erosion.
PwC’s own advisory section puts it plainly: scale without discipline destroys value. Margins remain under pressure from supply chain instability, labour constraints, and residual inflation. Digital tools and real-time performance tracking are, in PwC’s words, core margin protection levers now – not optional extras. The businesses that combine strategic M&A, operational rigour, and tight contract management are the ones that will convert sector growth into durable returns.
CITB forecasts the UK construction industry needs to recruit the equivalent of 239,300 additional workers over the next five years – roughly 47,860 per year. If you’re not already thinking about workforce planning alongside your business development strategy, you’re behind.
PwC forecasts overall UK construction output growth of 1.7% in 2026, rising to 2.9% in 2027 and 3.5% in 2028. This is a downward revision from their previous outlook, reflecting slower recovery in residential and commercial new build alongside delayed transport infrastructure schemes. Infrastructure and industrial sectors are expected to lead growth. (Source)
It’s looking very unlikely at the current pace. The target requires around 300,000 homes per year, but only 185,000 were completed in 2024 and Q1 2025 saw the lowest first-quarter completions since 2014. Affordability constraints, planning delays under the Building Safety Regulator, and housing association debt exceeding £130 billion are all creating headwinds. The new £39 billion Social and Affordable Homes Programme should help, but meaningful acceleration is not expected before 2027-2028. (Source)
Industrial output was the standout in 2025, growing 19.3% on the back of gigafactory construction, defence spending, and data centre commitments. Public non-residential (health, education) also outperformed at 18.3%. Looking ahead, infrastructure is expected to deliver the strongest sustained growth through 2028, driven by energy generation, transmission networks, and water investment under AMP8. (Source)
Commercial new build contracted by around 9% in 2025, driven by weak office and retail demand. Speculative office development is limited outside London, and vacancy rates for lower-grade stock remain high. The bright spot is life sciences and technical buildings, with major projects underway in Cambridge, London, and Canary Wharf. PwC expects gradual recovery from 2026, but the sector won’t return to pre-pandemic levels within the forecast window. (Source)
The Act received Royal Assent in December 2025 and is designed to streamline planning approvals, reduce delays for major infrastructure, and let local authorities set their own planning fees. It supports the government’s targets of 1.5 million new homes and 150 fast-tracked infrastructure decisions. Some provisions took effect immediately, others in February 2026, with many still awaiting commencement orders. The impact on actual site activity will take time to materialise, but the direction is positive for both housing and infrastructure delivery. (Source)
CITB estimates the UK construction industry needs roughly 239,300 extra workers over the 2025-2029 period – about 47,860 per year, or 1.8% of the 2024 workforce. The sector has shed around 10% of its workforce (approximately 250,000 jobs) since COVID, and pay rises remain above the UK average. With output growth forecast to pick up from 2026, the gap between demand and available labour is likely to widen further, making workforce planning a critical strategic priority. (Source)
Energy and water are driving the bulk of infrastructure growth. Nuclear projects (Hinkley Point C, Sizewell C), electricity transmission under the £28 billion RIIO-3 framework, and Ofwat’s £104 billion AMP8 water programme are the main programmes. Defence is also growing, with £1.5 billion in additional government spending. Transport is the weak link – HS2 uncertainty, roads focused on maintenance under RIS3, and the Lower Thames Crossing not expected to contribute within the forecast period. (Source)
