Fifty-three construction projects broke ground across Belfast, Birmingham, Leeds, and Manchester in 2025—up from 47 in 2024. Yet construction volume declined. Residential units under construction fell from 23,673 in 2024 to 21,057. Office space dropped from 2.8 million to 2 million square feet.
More starts, less output. The Deloitte Regional Crane Survey reveals a construction sector in strategic recalibration: developers are committing to projects, but building smaller, leaner, and more carefully. This shift from cautious optimism to selective execution tells a more sophisticated story than simple resilience—it signals how the industry is absorbing regulatory complexity, labor constraints, and cost pressures without retreating.
The Strategic Downsizing Pattern
Developers are building smaller projects—a calculated response to new economic realities.
The Building Safety Act fundamentally changed project economics. 95% of firms experienced increased compliance-related administrative tasks, with workloads rising by an average of 16%—a permanent recalibration of development pro formas.
John Cooper, partner at Deloitte: “The shift from cautious optimism to committed construction reflects sustained public and private sector investment overcoming operational headwinds.” Coordinated investment strategy counterbalances cost pressures.
Where the Money is Going
Student accommodation and hotels showed strong forward momentum. Residential and office sectors exhibited more cautious recovery patterns.
Student accommodation investment volumes hit £830 million in Q2 2025 alone, with the first half reaching £1.6 billion—significantly above historical averages. The full year closed at £3.5 billion, up 13% from 2024.
This sector demonstrates counter-cyclical strength. While broader economic uncertainty rattled other asset classes, student housing remained insulated. The fundamentals tell the story: CBRE projects 2.2 million students will require accommodation by 2026, creating a shortfall of roughly 620,000 beds.
Supply can’t keep pace with demand.
Hotels followed a similar trajectory across all four cities. These asset classes reached equilibrium between supply and demand, while residential and office markets continue working through structural adjustments.
Birmingham’s Quality Over Quantity Shift
Birmingham recorded only 11 new construction starts in 2024—the lowest level since 2020. Yet the city achieved record residential completions with 3,180 homes and the highest student accommodation bedspaces under construction in the survey’s history at 2,242. Targeted infrastructure investment and favorable planning policy created competitive advantages that override broader market headwinds.
Refurbishments dominate new builds in Birmingham’s commercial pipeline. Manchester exhibits the same pattern, reflecting economic pragmatism and sustainability imperatives.
Retrofitting costs 40-60% less than demolition and rebuild projects, according to the Building Cost Information Service. With construction costs predicted to increase 14% between Q2 2025 and Q2 2030, adaptive reuse makes financial sense.
Embodied carbon considerations increasingly influence development decisions. As environmental, social, and governance requirements tighten, refurbishment projects avoid the carbon-intensive demolition and new construction cycle.
Developers who master adaptive reuse position themselves for regulatory environments that penalize high-carbon approaches.
The Office Sector Paradox
Manchester’s office delivery reached 1.26 million square feet in 2025—the highest level in 17 years. Yet overall office construction volume across the four cities declined.
The divergence reveals a flight to quality. Prime locations attract investment while secondary markets struggle. Office planning approvals jumped 317% in the three months to December—driven by major schemes in established business districts—but London fell 11% against 2024 levels despite major data center developments.
Companies consolidate into fewer, higher-quality locations rather than distributing across multiple sites. This spatial concentration of office demand creates opportunity in established business districts while potentially stranding secondary office stock.
PwC anticipates commercial new build output will remain flat in 2025 before strengthening in 2026-27 as conditions improve. Location matters more than ever.
Public Investment as Market Catalyst
Cooper emphasized “strategic public and private sector investment” when discussing what drove resilience—identifying a dependency.
Private capital remains hesitant without public sector co-investment or anchor projects. The National Infrastructure Pipeline lists hundreds of projects, with regional spending forecasts exceeding £150 billion into 2026-27 across transport, utilities, and social infrastructure.
The NISTA pipeline shows £80 billion worth of investable energy projects over the next eight years. Water utilities in England and Wales began AMP 8 in April 2025, running through 2030 with over £50 billion in associated capital works.
This government-backed investment acts as a catalyst. Reduced public spending could reverse gains if private confidence hasn’t fully recovered.
The Labor Shortage Bottleneck
Cooper identified “labor force skills to support construction delivery” as key to catalyzing opportunities—the industry’s binding constraint.
Skilled labor shortages may prevent the sector from capturing available opportunities despite available capital and demand.
The UK construction industry faces over 140,000 job vacancies, stalling essential housing and infrastructure projects. The Construction Industry Training Board estimates an additional 251,500 workers are needed by 2028 to meet demand.
The sector shed approximately 10% of its workforce—equivalent to 250,000 jobs—since COVID. Job vacancies are falling, but pay rises remain above the UK average, signalinga persistent supply-demand imbalance.
Firms with robust workforce development capabilities will outperform peers with better balance sheets but weaker talent pipelines.
What the Pipeline Stability Masks
Residential completions across the four cities declined marginally, from 9,075 to 8,885 units.
This masks pipeline risk. The industry is working through a backlog. Reduced units under construction—from 23,673 to 21,057—signals potential supply shortfalls in 18-24 months if starts don’t accelerate.
PwC forecasts UK construction sector growth of approximately 1% in 2025, with further acceleration in 2026-27. Between 2026 and 2029, the industry should register an average annual growth rate of 3.2%, supported by investments in infrastructure, data centers, housing, and renewable energy projects.
The volume-quality tradeoff—more projects, smaller scale—creates medium-term housing availability concerns.
Regional Concentration and Inequality
The Deloitte survey focuses on Belfast, Birmingham, Leeds, and Manchester. These cities demonstrate resilience and investment attraction.
Investment and activity concentrate in established urban centers. Smaller cities and towns may struggle to attract comparable capital.
This pattern could amplify regional economic disparities. The benefits of strategic infrastructure spending and supportive planning accrue only to locations that secure that investment.
Some markets can thrive while others stagnate, risking permanent inequality between regions.
What This Means for 2026 and Beyond
The construction sector maintained momentum through deliberate recalibration: smaller project sizes, refurbishment over new build, geographic concentration, and public-private coordination. These aren’t temporary fixes—they represent a fundamental shift in how development economics work under the Building Safety Act, tighter embodied carbon scrutiny, and persistent labor constraints.
The patterns are interconnected. Labor shortages drive smaller project scales. Smaller scales favor refurbishment over ground-up development. Refurbishment concentrates in established urban markets with existing building stock. Geographic concentration attracts more public investment, reinforcing the cycle.
Developer willingness to break ground—despite cost pressures—signals confidence in medium-term demand. But three risks could derail this trajectory:
Labor shortages may cap growth even when capital and demand align. Firms with workforce development capabilities hold the competitive edge, not just those with capital.
Reduced public investment could undermine private confidence. The sector’s current resilience depends heavily on government co-investment acting as a catalyst.
Medium-term housing supply shortfalls loom if construction volumes don’t increase alongside project starts. The industry is working through a backlog that masks incoming scarcity.
The 2026 pipeline looks solid, but the strategic question isn’t whether the industry can maintain this baseline—it’s whether current adaptations represent smart right-sizing or the beginnings of a structural capacity constraint. Can firms scale back up when conditions improve, or has the industry permanently reset to a lower equilibrium?
The answer depends on whether today’s downsizing builds capability for tomorrow’s expansion—or simply locks in limitations.