London’s construction market is facing one of its toughest years in over a decade, with the capital’s new-build commercial and residential pipeline contracting by almost 30 per cent year on year.
According to Arcadis’ UK Market View Autumn 2025 report, the London slowdown is symptomatic of a wider industry “stuck in the cycle” of faltering demand, economic headwinds and complex programme delivery challenges.
Based on second quarter (Q2) data for London orders, Arcadis said new-build project awards and construction starts had contracted by nearly 30 per cent despite some big infrastructure orders earlier in 2025.
Arcadis cited National House-Building Council data to show a sharp decline in the London housing market.
This showed that only 904 new homes were registered in the capital during Q2 2025 — down 59 per cent year on year, and 82 per cent below the city’s quarterly average since 2011.
And there were just 2,158 housing starts across the first half of 2025, representing 2 per cent of London’s planning target.
“This slow-burn crisis cannot continue for much longer without real-world impacts for the housing market and the housing chain,” Arcadis warned.
Commercial development also remained subdued. Citing the most recent London Office Crane Survey from Deloitte, the report said just 223,000 square metres of new space had been added in the six months to March.
This was the weakest performance since mid-2022, Arcadis added.
The UK construction market is being propped up by public spending while London falters, the report said.
Public non-housing output rose 16 per cent year on year in Q2 of this year, with government-backed health, research and infrastructure projects providing vital momentum.
However, Arcadis warned that this sector still accounted for only 10 per cent of new-build activity, and was “not sufficient to drive a recovery” in the broader construction industry.
“Breaking out of the cycle is proving hard,” said Simon Rawlinson, Arcadis’ head of strategic research and insight.
“Economic headwinds and the complexity of delivering major programmes continue to hold back recovery. But for those willing to invest now, opportunities remain.”
Water and energy infrastructure emerged as hotspots in the latest report. Orders in the water sector were up 150 per cent year on year in Q2 2025, while electricity rose 50 per cent.
“New workload volume is likely to accelerate into 2026,” Arcadis added.
It forecasts construction cost inflation of 2-4 per cent for 2025, rising steadily to 5-6 per cent by 2028/29.
Network infrastructure costs in particular are projected to rise by 4-6 per cent next year and up to 8 per cent by the end of the decade, Arcadis added.
The report said lower interest rates were offering some relief, given the Bank of England’s base rate cut to 4 per cent last month.
Labour costs are stabilising overall, but Arcadis said “capacity constraints” in specialist trades — particularly mechanical, electrical and plumbing — were already pushing up labour costs.
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Ben Vogel