Subdued national construction output is masking the growing cost pressures facing individual projects, according to global programme manager Turner & Townsend.
Despite softer market activity, the business has raised its tender price inflation (TPI) forecast for the first time in two years, with its Q4 2026 UK Market Insight (UKMI) report.
Real estate forecasts in the UKMI have risen from 3.5 to 3.75 percent through both 2026 and 2027. Infrastructure tender pricing is expected to rise from 5.0 to 5.25 percent through 2026 and 2027.
Total new work output recorded in Q2 2026 was 6.1 percent lower compared to the same period last year, with new orders down 18.1 percent over the past 12 months. However, softening activity in commercial and residential is being countered by buoyant investment in sectors such as major infrastructure and energy programmes and data centres, limiting the relief which a quieter, more competitive market would normally bring to tender prices.
These pressures are also being compounded by escalating material and commodity costs as a result of tariffs and geopolitical disruption, as well as stricter building regulations and more complex specifications.
The business’ accompanying London market report highlights especially acute challenges in the capital. Despite prolonged weakness in two of the city’s key sectors (housing and private commercial development) stunting total output, hot markets including office development are creating intense competition, exerting a sharp upwards pressure on costs.
For specialist contractors, these uneven pockets of demand coincide with an uncertain economic backdrop and construction insolvencies set to outstrip pre-pandemic levels. Suppliers are consequently becoming more selective about the work they pursue and the contractual terms they will accept. Two-thirds of contractors surveyed by Turner & Townsend revealed they are prioritising bolstering profit margins over growing revenue, reflecting heightened selectivity and risk aversion throughout the supply chain.
This two-speed construction landscape is reflected in increasingly diverging local market conditions, as concentrated demand drives enhanced competition in some regions, while others remain notably cooler.
To make projects happen in this sellers’ market, Turner & Townsend is calling for clients to more closely assess contractor capacity and appetite in the regions and sectors where they plan to build, and engage early. Well-developed designs, clear scopes and carefully balanced contractual arrangements will help make projects more attractive and secure the supply chain needed to move forward.
James Darrie, Strategic Lead for Scotland at Turner & Townsend, said: "Scotland's construction market reflects many of the trends we're seeing across the UK. While overall activity levels remain mixed, demand associated with infrastructure investment, the energy transition and other major programmes continues to compete for labour, specialist skills and key materials.
"As a result, project teams need to look beyond national output figures and understand the realities of their local market. Headline data can mask very different conditions on the ground, with contractors and specialist suppliers becoming increasingly selective about the opportunities they pursue.
"For organisations planning investment in Scotland, early engagement with the market is more important than ever. Projects that are well-defined, backed by realistic delivery programmes and supported by balanced commercial arrangements will be better placed to secure the skills and capacity they need."