Walker Sime Market Report – Q4 2025: The Elusive Equilibrium

Walker Sime’s latest Q4 2025 Market Report reflects an industry searching for stability amid ongoing economic and regulatory turbulence. Despite early-year hopes for a strong rebound, the construction sector continues to face a difficult balancing act.

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Economic Landscape

The UK’s wider economic picture remains challenging. Productivity expectations have been downgraded and construction activity has softened, with the PMI dropping to its lowest level since May 2020. Consumer Price Inflation remains high at 4.1%, limiting the Bank of England’s ability to reduce the base rate below 4%. Combined with increased employer National Insurance contributions and slower-than-expected growth, confidence remains fragile.

Market Conditions

Material prices have largely stabilised, though key commodities like copper and aluminium continue to rise and global shocks remain a risk. Labour shortages persist across the sector, expected to intensify in 2026 as high-rise BSR approvals ramp up. Subcontractor capacity, particularly in the MEP market, is being stretched by data centre demand, adding pressure to lead times and procurement.

Supply Chain Pressures

Main contractors have spent much of the past year consolidating, tightening governance and avoiding risk-heavy commitments. Rising overheads and labour constraints are increasing costs, while funders are demanding stronger assurances such as PCGs and performance bonds. Meanwhile, more subcontractors are moving into main contracting roles for projects in the £5m–£15m range, shifting competitive dynamics.

Sector Outlook

Residential: Delivery remains well below the government’s ambitious housing targets. Higher mortgage rates, BSA delays, and regulatory uncertainty are limiting viability, though Build to Rent continues to attract strong investment and rental growth.

PBSA: Purpose-built student accommodation remains one of the strongest-performing asset classes, driven by growing domestic and international demand. However, BSA delays, rising build costs and planning scrutiny are lengthening programmes and stretching viability.

Commercial: Despite valuation pressures and shifting workplace expectations, confidence is slowly returning. New-build Grade A offices still command premium rents but face viability challenges, leading to a growing emphasis on refurbishments as a faster, more cost-efficient, and ESG-aligned route to market.

Looking Ahead

Walker Sime forecasts construction inflation rising to 3.25% in 2026, with price movements continuing to vary by region, project complexity, and procurement route. With economic uncertainty likely to persist into 2026, the report underscores the need for robust planning, diligent cost control and ongoing supply chain engagement.

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