TPI Survey Feedback

WORKLOAD

Construction workload trends are being shaped by a combination of sector-specific growth drivers and broader economic factors. While sectors like Purpose Built Student Accommodation (PBSA), data centres, healthcare and office fit-out remain key contributors to workload growth, there is renewed optimism across the industry. With interest rate movements looking more favourable, projects that were previously paused are now being reassessed.

Infrastructure, particularly public spending, is anticipated to be a significant growth driver in the coming months. Large-scale government investments in transport, utilities and social infrastructure could provide a boost to workloads. However, residential construction continues to face challenges, with projects often stuck in the Building Safety Act’s (BSA) complex Gateway 2 approval process. Viability concerns persist, but a further drop in interest rates may trigger renewed activity, especially as developers look to unlock their extensive land banks.

The fallout from ISG has left some local authorities hesitant to proceed with new public projects, leading to delays as they reassess their risk exposure. On the other hand, the New Hospitals Programme (NHP) is nearing its delivery phase, which, contingent on government funding, could lead to a surge in workloads and stretch contractor capacity further. In summary, while there is a strong pipeline of early-stage projects, the actual transition to on-site activity will take time and the sector's future performance will be influenced by key economic and political developments.

MARKET CONDITIONS

Market conditions in the UK construction sector present a complex mix of pent-up demand, cautious optimism and ongoing uncertainties. After a relatively slow 2024, there is growing anticipation of increased activity in the coming years. This latent demand, if unleashed in tandem with falling interest rates, could lead to greater strain on the supply chain, potentially pushing up inflationary pressures.

Despite signs of improvement, the residential market continues to face significant headwinds. Developers remain hamstrung by the BSA’s Gateway 2 approval process, which has delayed a considerable number of high-rise projects. The extended front-end design work required, along with regulator bottlenecks, has placed additional pressures on clients and subcontractors. This has slowed down the mobilisation of construction teams, with many projects stuck in pre-construction phases for months.

Commercial refurbishment, particularly cut-and-carve schemes, remains a strong driver of activity. Meanwhile, the industrial and logistics sector is poised for a recovery, with a robust pipeline of future projects. However, uncertainty around start dates and lingering viability challenges pose a significant risk to project delivery timelines. Contractors in this sector are increasingly finding themselves balancing the need to secure work with the risks inherent in aggressive tendering.

There’s also a noticeable shift in contractor dynamics. While Tier 1 contractors remain busy, Tier 2 firms are moving upmarket, targeting higher-value opportunities that Tier 1 firms might not be able to handle due to their committed workload. Interestingly, the perception that some contractors are "busy enough" may lead to companies being omitted from tendering lists, though in reality, many are actively pursuing opportunities to fill their pipelines.

With an improving demand outlook, there is a real risk that too much new work could come online simultaneously. This could further strain an already overstretched supply chain. Increased government investment, while boosting infrastructure and public sector projects, may unintentionally crowd out private sector work as both compete for the limited available resources.

Capacity constraints are already a dominant issue across the sector, especially among main contractors who are busy delivering projects. As demand rises, the dynamics of the market will shift, leaving clients with the challenge of making their projects more attractive to win the attention of selective contractors.

This situation is further complicated by heightened insolvencies in the construction industry, which continue to place pressure on the supply chain. Construction has historically seen higher insolvency rates than other sectors, but the recent collapse of major firms like ISG has caused ripple effects through the supply chain that are amplifying concerns. For example, performance bonds, which have become essential for securing construction finance, are now more difficult to obtain, creating a tougher financial landscape for contractors already stretched thin.

ISG’s demise is expected to reverberate across the supply chain in the coming months, raising the cost of risk and driving a more risk-averse climate. While some of ISG’s workload will be absorbed by larger contractors, many remain hesitant to shoulder substantial risk, preferring instead to focus on lower complexity projects. If the backlog of projects currently at stage 3 begins to progress, capacity will tighten even further, potentially creating a race for Tier 2 contractors to fill the gap left by ISG.

In tandem with this capacity squeeze, a noticeable shift in risk allocation is occurring. Main contractors are increasingly transferring design liability onto sub-contractors, often without providing sufficient financial recourse under the contract. This trend, coupled with payment delays from certain clients, is compounding the pressure sub-contractors face – many of whom are already grappling with high material costs and suppliers demanding upfront payments for goods. In this environment, the race to secure scarce capacity is likely to intensify, further inflating tender prices.