Is now a good time to bring viable construction projects forward?

With construction activity subdued and tender price inflation relatively moderate, could current market conditions offer an opportunity for clients and developers to build? BCIS chief economist Dr David Crosthwaite explores.

Construction activity has slowed during 2026 amid persistent pressures on demand and supply. UK headline inflation reached 3.5% in September, Bank Rate rose to 4% in November and volatility in energy, fuel and materials costs continues to complicate investment decisions.

With geopolitical tensions in the Middle East adding to uncertainty, the Budget wrapped up and the Prime Minister’s 10-year plan still to be announced, clients and developers may understandably be inclined to delay investment. But for projects that are viable and ready to proceed, there may be advantages to acting sooner.

The case for holding back

There are good reasons for caution. The Office for Budget Responsibility’s (OBR) October Economic and fiscal outlook forecasts Consumer Prices Index (CPI) inflation to peak at 3.8% in early 2027, with Bank Rate rising to just over 4.25% by mid-2027. The Bank of England’s November Monetary Policy Report also presents a more challenging near-term outlook, projecting CPI inflation of around 5% by mid-2027, partly reflecting elevated energy prices.

Both forecasts point to continued inflationary pressures and difficult financing conditions. Higher borrowing costs affect development appraisals, increase the cost of carrying debt and make it harder for projects to achieve the returns required to proceed.

Private housebuilding faces particular challenges. Affordability constraints, elevated mortgage rates and continued pressure on household incomes are weighing on demand. These challenges are compounded by younger households entering the housing market later in life. The latest data⁽¹⁾ show that the mean age of first-time buyers in England increased from 32 in 2019-20 to 34 in 2024-25, suggesting that demand from younger buyers is more delayed and potentially translating into less immediate housing market activity.

In other words, even where construction costs are competitive, developers need confidence that completed homes can be sold efficiently at rates sufficient to justify investment.

Public sector clients face different constraints. The Autumn Budget confirmed a 1% cut to departmental capital budgets between 2027-28 and 2029-30, raising £3 billion to help fund defence. This could intensify competition for funding and prompt departments to reconsider planned projects. Encouragingly, the government has committed to publishing an updated 10-year Infrastructure Pipeline before the end of 2026, covering more than £750 billion of planned investment. This should improve visibility of future workloads, although questions remain about the timing, funding and deliverability of individual schemes.

Is there a window of opportunity?

Members of the BCIS Tender Price Index Panel raised the possibility of a window of opportunity at their 3Q2026 meeting, mainly because subdued demand has kept tender price growth relatively moderate despite persistent pressure on construction input costs. The latest BCIS forecasts point to annual tender price growth of 3.0% in 4Q2026, lower than the forecast increase in the BCIS General Building Cost Index.

Tender price inflation growth has generally lagged behind building cost inflation over the past 18 to 24 months, suggesting that competition has limited contractors’ ability to pass rising costs on to clients in full. Where contractor capacity is available, clients may therefore be more able to secure more competitive tenders than if workloads recover. However, these conditions may not last.

BCIS forecasts total new work output to contract by 3.7% in 2026, before growing by 2.2% in 2027 and increasing by 11.4% between 2026 and 2031. If demand recovers as forecast, competition for contractor and subcontractor capacity could intensify, putting upward pressure on tender prices.

Contractors may also struggle to continue absorbing increased input costs. The Bank of England’s November analysis highlights the limits of businesses offsetting higher energy costs through reduced margins, with persistent pressures eventually feeding through into elevated prices.

Clients considering whether to defer investment ultimately face a trade-off. Delaying may allow time to improve designs, revisit specifications or secure more favourable financing, but postponement does not necessarily improve viability.

Even if inflation moderates, construction costs are likely to continue rising, albeit more slowly, rather than returning to previous levels. Following the energy shock caused by Russia’s invasion of Ukraine in 2022, higher input costs became embedded in supply chain pricing. Any savings from waiting for lower borrowing costs could therefore be offset by higher construction prices, depending on the project and its timing.

The opportunity varies by sector

The potential benefits of bringing projects forward depend on more than just the relationship between tender prices and input costs. Demand, supply chain capacity and investment conditions vary considerably across sectors and regions.

Private housing remains weak, while activity in areas such as data centres, energy infrastructure and utilities is stronger. However, these sectors can face constraints around specialist labour, equipment, grid connections and supply chain capacity, limiting opportunities to secure competitive prices.

Weaker demand also does not automatically make proceeding the right decision, particularly in markets such as speculative residential development. Viability depends on expected sales values and absorption rates, alongside land, finance, infrastructure, planning obligations and construction costs. Where buyer demand is weak, a competitive tender may not be enough to make a scheme viable.

The opportunity may be greater for public sector clients with secured funding and a clear requirement for new facilities, or private clients developing owner-occupied or pre-let buildings supported by committed occupiers and long-term demand. For these projects, greater contractor availability could offer better value, particularly where delaying construction would bring limited financial benefit.

Has the Autumn Budget changed the picture?

The Autumn Budget introduced measures to support investment and construction activity, although their impact on future workloads is likely to vary. For housing, the government announced an additional £1.5 billion for the Social and Affordable Homes Programme, intended to support around 10,000 additional homes in England. It also confirmed £4.7 billion for the Your First Home equity loan scheme, designed to help 70,000 first-time buyers in England.

These measures could support housing demand and development pipelines, but their effectiveness will depend on whether they translate into additional purchases and help developers overcome wider viability constraints. The timing may also weigh on the market in the short term. Applications for Your First Home loans are not due to open until February 2027, with the first sales expected in April 2027, so some buyers may delay purchases until the scheme is available.

The Budget also reaffirmed infrastructure investment commitments and measures to improve project delivery. Planned publication of the updated Infrastructure Pipeline could reduce uncertainty around individual programmes, funding or procurement but it must provide the right detail and be delivered soon rather than later. Further, if substantial volumes of funded pipeline work enter procurement over a relatively short period, contractor capacity could tighten, particularly in specialist sectors. The distinction between long-term investment commitments and projects likely to proceed in the near term therefore remains important.

Making the call to proceed

For clients and developers, the priority is to establish whether current conditions offer a genuine advantage for their project, rather than assuming a subdued market will automatically deliver lower prices.

Robust cost planning and market testing are essential, particularly in the early stages when design information may be limited. Using comparable project data, adjusted for current tender price levels and location, provides a realistic starting point for understanding likely costs and testing different scenarios.

BCIS holds data from thousands of historical projects that can be rebased to reflect current tender price and location conditions. Alongside relevant construction cost and tender price indices, these data can help clients assess how budgets may change under different inflation, demand and programme scenarios, including the potential cost of delaying work.

Of course, there are also opportunities to improve viability without postponing an entire scheme. Reviewing specifications, simplifying designs, considering alternative materials and engaging the supply chain early can help manage costs and improve buildability. Phased delivery or alternative procurement strategies may offer further flexibility, provided their implications for programme, risk allocation and overall cost are understood.

Fundamentally, the decision is not choosing whether to build now or wait. Rather, it’s considering whether current market conditions, supported by robust cost data and realistic forecasts, make proceeding the right choice for a particular project.

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^{(1) GOV.UK – Chapter 3: Housing history and future housing  - here}