Cost of construction tenders set to rise

Construction tender prices are set to climb by up to 5.0 per in 2026, threatening costs for key UK programmes and challenging project viability, according to new data from global professional services company Turner & Townsend.

In its Winter 2025 UK Market Intelligence report (UKMI), the business forecasts a rate of tender price inflation (TPI) of 3.5 per cent per year across real estate and 5.0 per cent for infrastructure through 2026 and 2027.  While these both represent only a modest 0.5 percentage point lift from the TPI rates experienced last year, Turner & Townsend says sustained cost escalation is putting pressure on the viability of new projects at a time of economic uncertainty.

Construction output remains subdued, at its lowest slump since the financial crisis according to the latest figures from the S&P Global UK Construction Purchasing Managers’ Index. However, the sector is seeing a fresh wave of demand as government plans for growth through the modern industrial strategy spur on renewed confidence in logistics, manufacturing and office development. Orders of new work made to construction firms were up by 29.3 per cent in the year from Q3 2024, the fastest increase since the easing of pandemic lockdowns.

The report points to a risk of the TPI rate accelerating further, as the government’s Planning and Infrastructure Act seeks to speed up project starts, further boosting demand, and as Labour’s missions jostle for resource. Against this backdrop, and with the sector losing workers at an alarming rate – some 50,000 in the past year, according to ONS – Turner & Townsend warns that capacity constraints and continued market uncertainty are threatening delivery.

Stephanie Marshall, UK MD of Real Estate Cost Management at Turner & Townsend, said: “It was an uncertain final quarter of last year – from the chancellor’s budget to geopolitical tensions which have very much continued into 2026.  It’s no surprise then that clients remain nervous about committing to projects. But we know the demand is there, both from public and private sectors, as the country works to revive economic growth. With a number of major programmes set out in the Spending Review expected to come online in the next 24 months, we can’t afford for the construction sector to wait for the real capacity crunch to hit.”

To ensure programmes get the funding, skills and materials needed, the professional services firm is urging clients to get on the front foot through building a closer handle on viability, the supply chain and risk from the procurement phase and throughout project delivery. Turner & Townsend calls for developers to consider mutual incentives and effective risk allocation to position themselves as an attractive partner and set programmes up to succeed.

Marshall added: “Clients need to grasp the nettle and get ahead to ensure programmes get off the ground and stay on track. In today’s complex environment of cost inflation, capacity challenges and regulatory reforms, close tracking of viability can’t be limited to the procurement phase or a single ‘go / no go’ moment – it needs constant review throughout the programme. Engaging with the supply chain early and working with them as true partners, rather than just suppliers, will also help in horizon scanning and addressing problems quickly. 

“There are significant opportunities facing our industry – to make the most of these and deliver for the wider UK economy, we need to get the right business cases, models and skills in place now.”