IN Brief:
- Turner & Townsend has raised its real estate and infrastructure tender price inflation forecasts by 0.25 percentage points.
- UK new construction output fell 6.1% year on year in the second quarter, while new orders declined 18.1% over twelve months.
- Two-thirds of surveyed contractors are prioritising margins over revenue growth, increasing the importance of design certainty and early procurement.
Turner & Townsend has increased its UK construction tender price inflation forecasts for the first time in two years, despite a sustained decline in new construction activity. Its fourth-quarter UK Market Insight report raises annual expectations for real estate from 3.5% to 3.75% in both 2026 and 2027. Infrastructure forecasts have increased from 5% to 5.25% for the same two years, reflecting continued pressure on project costs and the availability of specialist construction resources.
The upward revisions follow a period in which construction output and the volume of new orders have weakened. Total new work output in the second quarter of 2026 was 6.1% below the corresponding period in 2025, while new orders declined 18.1% over the preceding twelve months. The figures indicate lower aggregate activity, but the consultancy’s assessment shows that conditions vary considerably between construction sectors and geographic markets.
Major infrastructure, energy programmes and data centres continue to attract investment and absorb specialist delivery capacity. Residential construction and parts of the private commercial market have experienced weaker activity, leaving contractors and suppliers facing different levels of demand depending on the work they undertake. Competition for mechanical, electrical and other specialist resources can therefore remain substantial even when national construction output is falling.
Tender price inflation measures the change in prices submitted by contractors for construction work, rather than the movement in a particular material or labour cost. A tender incorporates numerous elements, including direct labour, subcontractor packages, plant, materials, site preliminaries, overheads, profit and allowances for risks associated with delivering the specified works. Changes in these components do not necessarily occur at the same rate or in the same direction.
Reduced demand for general building work may improve pricing conditions in some procurement markets, but an infrastructure project requiring scarce specialist contractors can face a different outcome. Programme complexity, location, design maturity and competing projects all influence the resources available to complete the work. These differences help explain why a decline in national output has not resulted in a corresponding reduction in the consultancy’s tender price forecasts.
Turner & Townsend also identified pressure from material and commodity costs, including the effects of tariffs and geopolitical disruption. More demanding technical specifications and building regulations can increase the scope of work needed to achieve the required building performance. These additional requirements may affect the quantities, installation methods, testing and specialist coordination incorporated into tenders, even where the prices of individual construction products remain relatively stable.
In London, the consultancy found a particularly uneven market. Prolonged weakness in housing and parts of private commercial development has constrained total output, while selected office projects continue generating strong demand. Contractors operating in those more active segments may face competition for specialist trades and supply capacity that differs substantially from the conditions experienced by businesses working in weaker construction markets.
Changes in contractor behaviour are adding another influence to tender pricing. Two-thirds of contractors surveyed by Turner & Townsend said they were prioritising stronger profit margins over revenue growth. This preference suggests that businesses are placing greater emphasis on the terms under which they accept projects, rather than pursuing additional turnover without sufficient consideration of the associated commercial and delivery risks.
Contractors assessing a potential tender must consider the completeness of design information, the reliability of the construction programme, payment arrangements and the allocation of risks between the parties. Where a project contains unresolved design interfaces or uncertain access requirements, bidders may include additional allowances to reflect the possible consequences. In some cases, contractors may decide that the risks cannot be assessed adequately and decline to tender.
These decisions influence competition before construction begins. A procurement exercise attracting fewer suitable bidders may produce different commercial outcomes from one in which several contractors have both capacity and confidence in the project requirements. The ability to secure competitive tenders consequently depends on the conditions offered to the supply chain as well as the volume of work available within the wider market.
Early engagement can help establish whether prospective contractors have the resources and appetite to deliver a scheme within the proposed programme. Discussions during project development may identify long-lead materials, constrained subcontractor capacity, unusual temporary works or construction sequences requiring specialist equipment. These findings can then inform the design, procurement strategy and programme before contractual commitments are made.
A well-developed specification also reduces uncertainty over the work being priced. Design changes introduced after tendering can affect material quantities, specialist packages and the sequence of construction activities, while unclear responsibility for interfaces can lead to disputes during delivery. Establishing the scope and contractual obligations before procurement provides a stronger basis for pricing, although it does not remove the effects of market inflation or unforeseen conditions.
Regional differences further complicate the outlook. Scotland’s construction market continues to experience demand associated with infrastructure investment, energy projects and other major programmes. These activities compete for labour, specialist services and materials, while other regional markets remain more subdued. A contractor operating near several major projects may face a different recruitment and procurement environment from a business working where large construction programmes are less concentrated.
The consultancy’s findings also follow a period of construction company insolvencies and financial pressure across the supply chain. Contractors may assess the creditworthiness of customers, the timing of payments and their own working capital requirements more cautiously when deciding whether to accept new work. Commercial terms that transfer substantial uncertainty onto the supply chain can become less attractive where margins are already under pressure.
The revised forecasts remain estimates of annual tender price movements, rather than confirmed increases for every building or infrastructure contract. Individual tenders will depend on design, procurement arrangements, location, contractor capacity and the distribution of commercial risk. A project entering procurement with clearly defined requirements may therefore experience different pricing conditions from a technically comparable scheme brought to market with unresolved scope or programme assumptions.
Turner & Townsend now anticipates tender price inflation of 3.75% for real estate and 5.25% for infrastructure in both 2026 and 2027. The higher infrastructure forecast reflects continued demand for complex construction resources, while the wider market remains constrained by weaker new orders and output. The next year of procurement activity will test how these conditions affect actual tender returns as projects progress from development into construction contracts.
