Arcadis Analysis Shows Large Contraction in London Construction Market

• London new build pipeline has contracted by nearly 30% on an annual basis despite some big infrastructure orders earlier in 2025.
• Some growth is coming the water, electricity, and housing markets across the country, but progress is slow relative to the scale of planned spend, and may slip to next year. 

Arcadis, the leading global design and consultancy organization for natural and built assets, today announced the release of its latest UK Market View report for Autumn 2025, called ‘Stuck in the Cycle’. The report, compiled with input from Arcadis market and sector experts, provides a comprehensive analysis of current market conditions, sector-specific trends, and inflation forecasts across the UK construction industry.

Arcadis’ analysis shows that early signs of an acceleration in demand have faded, with the market continuing to lean on public sector work to generate growth. Even in promising regulated sectors like water, projects are taking longer to start than had been anticipated. The good news is that interest rates have fallen again, and housebuilders are reporting an increase in reservations. Nevertheless, it is proving to be hard work to break out of the cycle.

Key Insights for Market Leaders:

• Market Conditions: While some improvement in sentiment and project pipeline is evident, demand in key markets such as London remains weak, and national high-density housing starts are at crisis levels. Clients able to progress projects in the current environment can secure highly competitive pricing, but these will not be sustained as the market recovers.
• Labour & Supply Chain: Labour cost inflation has moderated, and wage deals have been secured, but emerging scarcity in specialist trades—particularly Mechanical, Electrical, and Plumbing (MEP)—is driving up costs in these areas and offsetting savings elsewhere.
• Inflation Forecasts: These remain unchanged from our previous two reports. Building construction inflation is forecast at 2-4% for 2025, rising to 5-6% by 2028-2029. Civil and network infrastructure will see higher inflation, with network infrastructure costs expected to rise 4-6% in 2025 and up to 8% by 2029, driven by scarcity and strong demand.
• Areas of Growth: Activity in the water and energy sectors ramped up in Q3 2024 and remains steady at elevated levels. Order volumes increased significantly in Q2 2025 with water up by 150% year-on-year and electricity up by 50%. New workload volume in these sectors is likely to accelerate into 2026.

Simon Rawlinson, Head of Strategic Research & Insight at Arcadis, said: "Despite modest improvements in market sentiment and pipeline recovery, there are two main factors holding back the construction recovery, firstly economic headwinds and secondly the sheer complexity of bringing forward major programmes in the regulated and public sectors.Our latest Market View provides clients and stakeholders with actionable intelligence to navigate these conditions and make informed investment decisions."

The full report, including detailed sector insights and inflation forecasts, is now available from Arcadis.