TPI Survey Feedback

WORKLOAD

Feedback from our latest TPI survey reveals significant variation in workload across different sectors. Some, like data centres, life sciences, fit-out and health, are experiencing elevated levels of activity. In contrast, others, such as residential, have stalled. This disparity has led to the emergence of a two-speed tendering market.

In this market, sectors experiencing high or recovering demand are facing capacity constraints. A sharp rise in the volume of the MEP-intensive projects has absorbed much of the available capacity, leading to reduced tendering competition and less pressure on margins. As the more active ‘mission critical’ sectors draw resource away from those less active sectors, overall capacity among Main Contractors to deliver projects remains pressed.

Looking ahead, there is cautious optimism driven by improved economic stability, interest rate cuts, and positive post-election sentiment. The new Labour Government’s commitment to reducing planning red tape and promoting housebuilding is expected to drive demand. The office refurb trend is also likely to continue, driven by the desire to reduce embodied and operational carbon and deliver best in class space with a lower cost of construction. Feedback suggests a busy market in Cambridge and a resurgence in the London residential sector. The data centre market is also gearing up for new projects, reflecting broader trends of increased investment and enquiry levels. Despite this, significant cross-sector growth is not anticipated until next year, as projects previously on hold gradually resume.

MARKET CONDITIONS

Market conditions underwent another shift in Q3. Although many still maintain a neutral outlook, there has been a noticeable change in perception, with expectations now leaning towards increased activity and more subdued tendering over the next six months.

Analysing parliamentary terms alongside construction output suggests that Labour governments tend to foster more robust and consistent construction growth compared to Conservative and Coalition periods across most sectors. The data also reveals that construction cost inflation does not show significant fluctuations immediately following general elections. Instead, noticeable effects on inflation typically emerge 1-2 years after the implementation of new government policies.

In the short-term, however, interest rate movements are likely to exert a more immediate influence on construction growth than government policy. Although current financing costs are relatively normal compared to long-term historical rates, funding remains a challenge for investors and developers. This is further compounded by high land values, which negatively impact viability calculations and delay construction. While new policies, such as the Government’s target of building 1.5 million homes over five years, will support construction activity, supply is ultimately in the hands of large private developers. Without lower borrowing costs to stimulate private investment and drive occupational demand, achieving these ambitious growth targets will be challenging.

Contractor capacity will be another key driver of market activity and tendering conditions in the coming months. According to G&T’s latest Main Contractor survey, short-term forward pipelines remain robust and contractors are largely confident that new work volumes will recover from the recent slowdown in new orders. However, capacity has been depleted by rising insolvencies throughout the supply chain. The remaining contractors have become increasingly selective about the work they take on and the clients they engage with, placing greater emphasis on understanding project risks and managing profit margins. Capacity and willingness to tender on large, complex projects therefore remains tight, and contractors are prioritising smaller, straightforward projects with more predictable risks.