UK & Europe
UK
On the path to growth but vigilance is required
After a subdued end to 2024, the UK construction industry can look forward to a stronger year ahead with growth of 2.7% forecast for 2025.¹ Commercial and residential development, infrastructure, and data centre projects will receive a much-needed boost as government investment increases, bolstered by stabilising inflation and reduced interest rates. The timing of these will depend upon how the government's tax and spending plans are seen to affect the inflation rate. Cost increases of 3-4% are likely to impact almost every project.
Increased National Insurance contributions for employers take effect from April 2025. If this has a detrimental impact on the wider economy, such as in reduced consumer spending, it may by extension have an impact on willingness to invest in construction and refurb projects. Ongoing labour shortages, particularly skilled labour, will also continue to cause challenges. Projects involving major scale or specialised components, particularly those sourced from outside the UK such as MEP (mechanical, engineering and plumbing) services and cladding will be more likely to be affected by global economic changes such as trade tariffs.
Financial stability is a significant risk for the industry, as shown by the recent collapse of several established names. Ongoing uncertainty makes it difficult to assess and mitigate risks, which is why it’s so important that this is done comprehensively and early in the process for every project.
1 Experian, UK Construction Forecast Autumn 2024, Volume 30, Issue 4.
Europe
High-tech opportunities but challenges await
Europe’s construction outlook presents a mixed picture this year. Growth is expected in high-tech, logistics, and renewables, but challenges remain. Labour shortages, funding constraints, and regulatory uncertainty demand careful planning and risk management. Skilled tradespeople are in short supply, impacting project timelines and costs, especially in high growth sectors like high-tech.
The ongoing conflict in Ukraine adds further instability across the continent. That said, the focus on sustainability and digitalisation offers opportunities for forward-looking firms to capitalise on emerging trends, provided they can build in the resilience they need to succeed. Overall cost escalations of around 2% to 3% are expected across the continent, depending on country and sector.
France
Political uncertainty in France is suppressing construction activity and this is unlikely to be resolved in the short term. Despite this, the 2024 Choose France Summit announced €15 billion in investments for projects to boost renewable energy, decarbonisation, high tech, pharma and tourism. Other sectors are likely to stabilise or decrease.
Residential and commercial real estate will continue to slow as ongoing inflation, uncertainty around interest rates and hybrid working depress demand and reduce the appetite for investment. Overall, we expect cost increases of around 2-3% in France.
Germany
The German construction sector will face tough times as recession continues. Concern over interest rates, restricted government budgets, soaring costs, declines in purchasing power and political uncertainty will all serve to suppress demand.
The residential construction sector will remain under significant pressure: rapidly rising construction and financing costs have led to a decline in building permits and completions, further weakening investor confidence. Investment is likely to focus on logistics, data centres, and energy-efficient renovations, driven by government subsidies and climate targets. Construction costs are expected to rise around 2%.
Italy
The Italian construction sector is set to see measured but steady growth, thanks in part to the significant investment from the PNRR (Piano Nazionale di Ripresa e Resilienza). This €194.4 billion recovery plan, with its focus on digitalisation and sustainability, is expected to boost the sector. As a result, strong growth industries will include logistics, infrastructure and data centres.
As elsewhere in Europe, Italian firms face skilled labour shortages. Rising costs of raw materials, supply chain delays and increased demand for industrial spaces will all add to cost escalations of around 2% in the country and may inhibit further growth.
Spain
This year Spanish economic growth is expected to continue to strengthen. The construction industry will see significant activity in high-tech and hospitality. However, increased demand in these sectors, particularly high-tech, may pose a challenge as competition increases for already scarce skilled labour and specialised materials. Increasing labour costs, especially for MEP services, will be a key driver of cost increases. The country is likely to see construction costs rise by around 3%.
France
Political uncertainty in France is suppressing construction activity and this is unlikely to be resolved in the short term. Despite this, the 2024 Choose France Summit announced €15 billion in investments for projects to boost renewable energy, decarbonisation, high tech, pharma and tourism. Other sectors are likely to stabilise or decrease.
Residential and commercial real estate will continue to slow as ongoing inflation, uncertainty around interest rates and hybrid working depress demand and reduce the appetite for investment. Overall, we expect cost increases of around 2-3% in France.
Germany
The German construction sector will face tough times as recession continues. Concern over interest rates, restricted government budgets, soaring costs, declines in purchasing power and political uncertainty will all serve to suppress demand.
The residential construction sector will remain under significant pressure: rapidly rising construction and financing costs have led to a decline in building permits and completions, further weakening investor confidence. Investment is likely to focus on logistics, data centres, and energy-efficient renovations, driven by government subsidies and climate targets. Construction costs are expected to rise around 2%.
Italy
The Italian construction sector is set to see measured but steady growth, thanks in part to the significant investment from the PNRR (Piano Nazionale di Ripresa e Resilienza). This €194.4 billion recovery plan, with its focus on digitalisation and sustainability, is expected to boost the sector. As a result, strong growth industries will include logistics, infrastructure and data centres.
As elsewhere in Europe, Italian firms face skilled labour shortages. Rising costs of raw materials, supply chain delays and increased demand for industrial spaces will all add to cost escalations of around 2% in the country and may inhibit further growth.
Spain
This year Spanish economic growth is expected to continue to strengthen. The construction industry will see significant activity in high-tech and hospitality. However, increased demand in these sectors, particularly high-tech, may pose a challenge as competition increases for already scarce skilled labour and specialised materials. Increasing labour costs, especially for MEP services, will be a key driver of cost increases. The country is likely to see construction costs rise by around 3%.